easy · Asset-Backed Securities

What happens if a 'Cumulative Loss Trigger' is activated in an amortizing auto ABS transaction?

1. The interest rate on all subordinate tranches is immediately increased by 500 basis points across the entire deal.
2. The transaction is automatically transferred to a Special Servicer, who then liquidates the entire collateral pool right away.
3. The senior bondholders are required to write down their outstanding principal by the full dollar amount of the loss trigger breach.
4. Cash flow that would have gone to the residual holder is redirected to build overcollateralization or pay down senior bonds.

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