medium · Asset-Backed Securities waterfalls
A credit card master trust experiences three consecutive months where the portfolio yield is 18%, charge-offs are 10%, and the base rate (bond coupons + servicing) is 7.5%.
If the early amortization trigger is 'three-month average excess spread < 0%', what happens to the trust?
- The seller is required to add more receivables to the pool.
- The trust enters rapid amortization, and principal is returned sequentially to bondholders.
- The revolving period continues as the excess spread is still positive.
- The trust immediately draws on the Reserve Account to pay the seller.
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