CMA Final · Strategic Financial Management · Securitization
A pool of receivables has a face value of Rs 80 crore. The SPV issues a senior tranche of Rs 60 crore, a mezzanine tranche of Rs 12 crore and retains an equity (first-loss) tranche. Credit losses on the pool turn out to be Rs 15 crore, absorbed in order of seniority from the bottom. What is the loss borne by the mezzanine tranche, in Rs crore?
The mezzanine tranche bears Rs 7 crore. The equity tranche of Rs 8 crore absorbs the first losses, and the remaining Rs 7 crore of the Rs 15 crore loss falls on the mezzanine tranche, leaving the senior tranche untouched.
- A12
- B7
- C3Correct
- D0
Explanation
Equity tranche = 80 - 60 - 12 = 8 crore. It absorbs the first 8 crore of loss. The remaining 7 crore falls on mezzanine, which holds 12 crore, so the mezzanine loss is 7 crore. Check: 8 + 7 = 15.
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