medium · Asset-Backed Securities regulatory
A sponsor uses a 'Vertical' slice of 5%. In a month where the deal receives $10 million in total principal and $2 million in interest, how much of these cash flows must be paid to the sponsor's retained interest?
- The entire $2 million of interest, to cover the cost of the 5% retention.
- Nothing, until the senior bondholders have been paid their full principal.
- $500,000 of principal and $100,000 of interest.
- Only the $100,000 of interest; principal is held in the trust until maturity.
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