medium · Asset-Backed Securities waterfalls
Which of the following describes the 'ratcheting' effect of sequential pay in a stressed deal?
- The servicer is required to increase collection efforts by a fixed percentage every reporting month
- The interest rate on the senior and subordinate bond classes automatically increases each time the pool amortizes
- Additional subordinate bond classes are issued and added to the deal structure as the pool seasons
- Triggers prevent a step-down to pro-rata, locking the deal into sequential mode to maximize senior safety
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