medium · Asset-Backed Securities
A 'Reserve Account' is funded at $5,000,000 at closing. In month 5, a $500,000 draw is made to cover a senior interest shortfall. In month 6, the pool generates $2,000,000 in excess spread.
Where does this excess spread go first in a typical waterfall?
- To pay the subordinate bond's interest for month 7
- To replenish the reserve account back to its $5,000,000 target
- To pay principal on the Class A notes
- To the residual holder as a dividend
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