medium · Asset-Backed Securities
How does an 'Appraisal Reduction' in a CMBS deal differ from a 'Default Haircut' in a CLO OC test?
- A CLO haircut is only applied after a loan has defaulted for 180 days, while an appraisal reduction is immediate.
- Appraisal reductions only apply to the senior-most bonds, while CLO haircuts apply to the junior bonds.
- There is no difference; both terms refer to the market-value write-down of collateral.
- An appraisal reduction primarily limits servicer advances and interest flow, whereas a CLO haircut directly affects principal coverage triggers.
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