CMA Final · Strategic Financial Management · Securitization
An SPV acquires a pool of receivables with a principal outstanding of Rs 200 crore carrying a weighted average interest of 11% p.a. The PTCs issued carry a coupon of 9% p.a. on Rs 200 crore, and servicing fee is 0.5% p.a. on the pool principal. Ignoring other costs, what is the annual excess spread (in Rs crore) available as credit enhancement?
The excess spread is Rs 3 crore. Pool interest is 11% of Rs 200 crore, or Rs 22 crore. From this deduct PTC coupon of Rs 18 crore and the servicing fee of Rs 1 crore. The Rs 3 crore balance serves as credit enhancement.
- ARs 4.00 crore
- BRs 3.00 croreCorrect
- CRs 5.00 crore
- DRs 2.00 crore
Explanation
Pool interest = 11% x 200 = Rs 22 crore. PTC coupon = 9% x 200 = Rs 18 crore. Servicing fee = 0.5% x 200 = Rs 1 crore. Excess spread = 22 - 18 - 1 = Rs 3 crore. Rs 4 crore ignores the servicing fee.
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