CMA Final · Strategic Financial Management · Securitization
An originator securitizes a pool of Rs 50 crore. The pool earns an average interest of 12% p.a. The PTCs pay investors 9% p.a. Servicing and trustee fees are 0.5% p.a. of the pool. Taking the pool as constant for one year, what is the annual excess spread in rupees?
The excess spread is Rs 1.25 crore. Pool interest of Rs 6 crore less investor coupon of Rs 4.5 crore and fees of Rs 0.25 crore leaves Rs 1.25 crore, which works as the first line of credit enhancement.
- ARs 1.50 crore
- BRs 1.25 croreCorrect
- CRs 1.75 crore
- DRs 2.50 crore
Explanation
Pool interest is 12% of 50 = Rs 6.00 crore. PTC coupon is 9% of 50 = Rs 4.50 crore and fees are 0.5% of 50 = Rs 0.25 crore. Excess spread = 6.00 - 4.50 - 0.25 = Rs 1.25 crore. Rs 1.50 crore ignores the servicing fees.
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