CFA Level I · CFA Level I Exam · Fixed-Income Securitization
An issuer's covered bond has a cover pool whose assets are replaced when loans become non-performing, so that the pool stays sufficient to service the bonds. This feature is best described as a:
This is a dynamic cover pool. The issuer can replace non-performing or maturing assets with performing ones to keep the pool adequate. A static pool would keep the original assets fixed, and a turbo feature concerns accelerated principal paydown in securitizations, not asset substitution.
- Adynamic cover poolCorrect
- Bstatic cover pool
- Cturbo structure
Explanation
A dynamic cover pool allows the issuer to substitute or add assets, for example replacing non-performing loans, to maintain the required quality and coverage. A static pool has fixed assets that are not replaced. A turbo structure is a cash-flow allocation feature in securitizations, not a cover pool feature.
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