medium · Asset-Backed Securities tranching
A trust has $100,000,000 of assets and $95,000,000 of bonds.
If the OC target is $8,000,000, and this month the interest waterfall shows $400,000 of excess spread after coupons and fees, how will that $400,000 be used in a standard deal?
- It will be used as principal to pay down bonds, increasing OC to $5,400,000.
- It will be used to buy $400,000 worth of new bonds in the secondary market.
- It will be added to the interest payments of the Class A bondholders as a bonus.
- It will be paid immediately to the residual holder because the assets already exceed the bonds.
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