medium · Asset-Backed Securities collateral
In a sequential principal waterfall, what is the impact of higher-than-expected prepayments on the 'Class B' (subordinate) tranche?
- It begins receiving principal distributions immediately alongside Class A
- Its Weighted Average Life (WAL) remains largely unchanged while Class A is outstanding.
- Its credit support increases automatically each time Class A amortizes further
- Its Weighted Average Life shortens significantly right away as soon as prepayment speeds pick up
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