CMA Final · Strategic Financial Management · Securitization
A loan pool of Rs 50 crore carries a weighted average interest of 11% p.a. The SPV pays PTC investors 9% p.a. on Rs 50 crore, and servicing fee is 0.5% p.a. on the pool. What is the annual excess spread available as credit enhancement, in rupees?
Excess spread is Rs 0.75 crore. Pool interest is Rs 5.50 crore, investor coupon Rs 4.50 crore and servicing fee Rs 0.25 crore, leaving Rs 0.75 crore. Ignoring the servicing fee would wrongly give Rs 1.00 crore.
- ARs 0.75 croreCorrect
- BRs 1.00 crore
- CRs 0.50 crore
- DRs 1.25 crore
Explanation
Pool interest = 11% x 50 = Rs 5.50 crore. Investor coupon = 9% x 50 = Rs 4.50 crore. Servicing = 0.5% x 50 = Rs 0.25 crore. Excess spread = 5.50 - 4.50 - 0.25 = Rs 0.75 crore. Rs 1.00 crore ignores the servicing fee.
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