medium · Asset-Backed Securities waterfalls
If a sequential waterfall uses pool principal to pay down Class A and Class B, but interest collections are only sufficient to pay Class A interest, what happens to the Class B interest?
- The servicer is required to advance it using their own corporate funds.
- It is permanently forgiven outright by the subordinate Class B bondholder.
- It is deferred (paid later) and the principal distribution to Class A continues.
- It is paid immediately from principal collections, bypassing Class A's scheduled paydown.
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