medium · Asset-Backed Securities waterfalls
If an ABS transaction is structured to 'build' overcollateralization (OC) over time, how is the excess spread utilized in the monthly waterfall?
- Excess spread is used to pay down the principal of the most senior outstanding bonds in an amount greater than the principal collected from the pool.
- Excess spread is paid at once to the residual holder, who then pledges a share of it back into the trust as a discretionary capital contribution.
- Excess spread is used to purchase additional loans from the originator, at a premium, to enlarge the total asset balance of the collateral pool.
- Excess spread is simply deposited into a non-interest-bearing reserve account until the balance matches the target OC dollar figure, then stops.
Sign up free to see the explanation and track your rank →
More Asset-Backed Securities waterfalls practice
- Under the stated deal mechanics, how does the ARA affect monthly interest distributions?
- Which consequence follows from that provision?
- Before liquidation, what is the direct cash-flow effect?
- Does the series enter early amortization?
- If the original pool was $1,200 million and the current balance is $115 million, can the s
- If the pool generates $6.46 million in interest and all bond tranches require $4.258 milli
- If the original balance was $1,250,000,000 and the current balance is $145,000,000, how mu
- If prepayments for the month are $6M, and Class M has a $50M balance while Class B has a