hard · Asset-Backed Securities tranching
An investor buys a CMBS B-Piece (the unrated bottom layer) at 75 cents on the dollar. The pool experiences a 3% cumulative net loss.
If the B-Piece represents the bottom 5% of the capital stack, what is the impact on the B-Piece investor's principal recovery at the end of the deal?
- The investor receives their full 75-cent investment back as long as the DSCR stays above 1.0x.
- The investor loses 3% of their 75-cent purchase price.
- The investor loses 60% of their original par value, receiving 40% back.
- The investor is unaffected because the loss is below the 5% subordination level.
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