medium · Asset-Backed Securities
An auto ABS Class B bond is currently receiving principal pro-rata with Class A. The deal has a ratchet mechanism.
If 60-day delinquencies spike from 1.5% to 4.5%, exceeding the 4.0% performance trigger, what is the immediate effect on Class B's Weighted Average Life (WAL)?
- The WAL will extend.
- The WAL will shorten.
- The WAL remains unchanged as it is a term bond.
- The WAL will shorten because defaults accelerate paydown.
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