medium · Debt Capital Markets
If a borrower is subject to a sequential principal waterfall rather than a pro-rata structure, what is the primary impact on the mezzanine tranches?
- The mezzanine tranches will amortize more quickly, reducing their credit risk over time.
- The mezzanine tranches will experience a significant delay in receiving principal payments.
- The attachment point for the senior tranche will decrease as the pool amortizes.
- The mezzanine tranches will receive higher interest payments to compensate for the lack of amortization.
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