CA Final · Advanced Financial Management · Securitization

An SPV buys a pool of receivables with a face value of ₹100 crore from Bharat Auto Finance. The pool yields 12% p.a. to the SPV. The SPV issues PTCs of ₹92 crore at 10% p.a. and the rest is a subordinated tranche. Expenses are ignored and the whole year's interest is collected with no defaults. After paying PTC investors their interest for the year, the excess spread available to the subordinated holder (the originator) is:

The excess spread is ₹2.80 crore. The pool earns 12% on ₹100 crore, which is ₹12 crore, while PTC investors are paid 10% on ₹92 crore, which is ₹9.2 crore. The difference of ₹2.80 crore flows to the subordinated tranche holder.

A₹2.80 croreCorrect
B₹12.00 crore
C₹2.00 crore
D₹3.20 crore

Explanation

Pool interest = 12% × 100 = ₹12 crore. PTC interest = 10% × 92 = ₹9.2 crore. Excess = 12 - 9.2 = ₹2.80 crore. The ₹2.00 crore option wrongly uses a 2% spread on 100; ₹3.20 crore wrongly subtracts 8.8 as if PTC were ₹88 crore.

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