medium · Asset-Backed Securities
Following a manufacturer's insolvency, the backup servicer assumes control of a Dealer Floorplan trust.
If the backup servicing fee is 15 bps higher than the original manufacturer's servicing fee, which component of the waterfall is most directly impacted before losses are recognized?
- The Portfolio Yield increases automatically each period to help offset the trust's higher ongoing servicing costs and fees.
- The Excess Spread is compressed by exactly 15 bps (annualized), potentially bringing the trust closer to an excess spread trigger.
- The Class A bond coupon is contractually reduced by 15 bps so that the trust can continue to maintain its stated breakeven economics.
- The Overcollateralization amount is reduced by the present value of the servicing fee increase measured across the trust's entire remaining life.
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