medium · Asset-Backed Securities waterfalls
An amortizing Auto ABS states that after a delinquency-trigger breach, excess cash otherwise releasable must build overcollateralization until the target is restored.
Which action builds overcollateralization mechanically?
- Available principal is released early to the most subordinate bond class.
- Excess cash is applied to senior-note principal until the OC target is restored.
- The contractual servicing fee is reduced to zero for the remaining deal term.
- The fixed-rate notes are converted immediately into floating-rate notes.
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