medium · Asset-Backed Securities waterfalls
A credit card master trust has a series with a $1,000M invested amount. The trust is currently in its revolving period.
If a three-month rolling average excess spread trigger is breached, what is the immediate structural consequence for the principal collections allocated to that series?
- Principal collections are diverted to the spread account until it reaches its target funding level.
- The trust enters a controlled amortization phase where principal is accumulated in a funding account for 12 months.
- The revolving period terminates, and all allocated principal collections are paid to bondholders monthly.
- Principal collections are used to purchase new receivables from the seller to maintain the invested amount.
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