medium · Asset-Backed Securities regulatory
During a AAA stress test, an agency assumes a 'purchase rate' of 0% for a revolving trade receivables pool.
What is the analytical purpose of this assumption?
- It simulates a scenario where the originator becomes insolvent and stops all sales.
- It raises the overcollateralization percentage by blocking new subordinate debt issuance.
- To test how quickly the bonds are repaid during a 'liquidation' or 'wind-down' of the trust.
- It ensures that only the highest-quality, lowest-delinquency accounts remain in the receivables pool.
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