easy · Asset-Backed Securities waterfalls
What happens if a 'Cumulative Loss Trigger' is activated in an amortizing auto ABS transaction?
- The interest rate on all subordinate tranches is immediately increased by 500 basis points across the entire deal.
- The transaction is automatically transferred to a Special Servicer, who then liquidates the entire collateral pool right away.
- The senior bondholders are required to write down their outstanding principal by the full dollar amount of the loss trigger breach.
- Cash flow that would have gone to the residual holder is redirected to build overcollateralization or pay down senior bonds.
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