CMA Final · Strategic Financial Management · Securitization

An SPV purchases a receivables pool with a face value of ₹50 crore from a manufacturer at a discount rate that gives a purchase price of ₹46 crore. The SPV funds it by issuing senior notes of ₹40 crore and a subordinated (junior) tranche for the balance. Pool collections turn out to be ₹44 crore, applied first to senior notes. What amount is available to the junior tranche, ignoring costs and interest?

Senior notes of ₹40 crore are paid first from collections of ₹44 crore, leaving ₹4 crore for the junior tranche. Since the junior tranche invested ₹6 crore, it absorbs a ₹2 crore loss, but the amount actually available to it is ₹4 crore.

A₹2 crore
B₹4 croreCorrect
C₹6 crore
D₹0

Explanation

Collections of ₹44 crore are applied first to the senior notes of ₹40 crore, leaving ₹44 - 40 = ₹4 crore for the junior tranche. The junior tranche was funded with ₹6 crore (46 - 40), so it suffers a loss of ₹2 crore, but the amount available is ₹4 crore.

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