hard · Asset-Backed Securities
A CLO manager is considering adding a new loan to a $1 billion portfolio during the reinvestment period. The portfolio currently has a Weighted Average Spread (WAS) of 360 bp (floor 350 bp) and a Weighted Average Rating Factor (WARF) of 2850 (cap 2900). The new loan is a $20 million position with a spread of 320 bp and a rating factor of 3100.
Which test is most at risk of being breached by this trade?
- Neither test, because a $20 million loan is too small to move the averages of a $1 billion portfolio
- Only the WARF test, because the WAS floor applies only at the end of the reinvestment period
- Only the WAS test, because the WARF cap is adjusted monthly based on the 'Moody's Diversity Score'
- Both the WAS and WARF tests may be breached, as the new loan is below the current WAS average and above the WARF average
Sign up free to see the explanation and track your rank →
More Asset-Backed Securities practice
- Which vehicle was specifically created by the Tax Reform Act of 1986 for this asset class?
- What is the most likely tax structure?
- Given the real estate collateral, which tax vehicle is standard for this multi-class trans
- An originator transfers auto loans to a bankruptcy-remote in… — What is the economic purpo
- Under ASC 860, which condition must be met for a transfer of receivables from an originato
- Why does it covenant NOT to incur additional debt?
- A CLO manager is actively buying and selling senior secured… — Which phase of the transact
- An analyst observes that a Non-agency Senior RMBS bond with… — How should the credit decom