medium · Asset-Backed Securities tranching
In a 'step-up' OC structure, the target OC is 2.00% for months 1-12 and increases to 4.00% after month 12.
If a deal starts with 1.00% initial OC and has reached its 2.00% target by month 8, what happens to excess spread in months 9, 10, and 11?
- It continues to be trapped to reach the future 4.00% target early
- It is released to the residual holder
- It is deposited into the reserve account until month 12
- It is used to pay down the senior bonds pro-rata
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