CMA Final · Strategic Financial Management · Securitization
A bank securitises a pool of loans with outstanding principal of Rs 50 crore. The pool pays interest at 12% p.a. The SPV issues PTCs at a coupon of 9.5% p.a. on the full Rs 50 crore, and servicing fee to the originator is 0.5% p.a. on pool principal. What is the annual excess spread available (before credit losses) to the SPV, in Rs lakh?
The excess spread is Rs 100 lakh. Pool interest of Rs 600 lakh less PTC coupon of Rs 475 lakh and servicing fee of Rs 25 lakh leaves Rs 100 lakh, which acts as a cushion against credit losses.
- A125
- B100Correct
- C150
- D175
Explanation
Pool interest = 12% of 5,000 lakh = 600 lakh. PTC coupon = 9.5% = 475 lakh. Servicing fee = 0.5% = 25 lakh. Excess spread = 600 - 475 - 25 = 100 lakh. Ignoring the servicing fee gives 125.
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