medium · Asset-Backed Securities
A stylized Auto ABS deal has reached month 24. The cumulative net loss (CNL) is 1.80%. The transaction documents state that the step-down condition requires a CNL of less than 1.50%.
How does the principal waterfall behave in month 25?
- It remains sequential, paying only the senior-most outstanding tranche
- It flips to pro-rata pay to all rated tranches
- The cleanup call is automatically exercised by the servicer
- Excess spread is released to the residual holder
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