medium · Asset-Backed Securities
If a CLO portfolio's concentration of CCC rated assets exceeds the permitted threshold (typically 7.5%), how is the excess CCC exposure generally treated in the OC test numerator?
- The excess CCC assets are reclassified as defaulted assets for the purposes of all portfolio tests.
- The excess is valued at the lower of its market value or a specified recovery rate, creating a 'haircut'.
- The par value of the excess CCC assets is completely removed from the numerator.
- The OC test trigger ratio for all senior classes is automatically increased by 50 basis points.
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