easy · Asset-Backed Securities collateral

In an auto ABS waterfall, where is 'Excess Spread' generally applied first when a net loss occurs?

1. To pay down principal owed on the senior-most bond class.
2. To pay the trustee's routine monthly servicing and admin fees.
3. To cover the loss and prevent a draw on hard credit enhancement.
4. To pay discretionary residual cash flow to the deal's equity sponsor.

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