Skip to content

CA Final · Advanced Financial Management · Securitization

Ganga Finance securitises Rs 80 crore of receivables. The SPV issues Senior PTCs of Rs 68 crore and a Subordinated tranche (first-loss, held by originator) of Rs 12 crore. Expected pool collections are Rs 80 crore of principal. Lifetime losses in the pool turn out to be Rs 15 crore. What are the losses borne by the Senior PTC holders and by the originator's subordinated tranche respectively?

Senior holders lose Rs 3 crore and the originator's subordinated tranche loses Rs 12 crore. The subordinated first-loss tranche absorbs losses up to its size of Rs 12 crore, and the excess of Rs 3 crore over that cushion passes to senior holders.

  1. ARs 3 crore and Rs 12 croreCorrect
  2. BRs 0 and Rs 15 crore
  3. CRs 12.75 crore and Rs 2.25 crore
  4. DRs 3 crore and Rs 15 crore

Explanation

The subordinated tranche absorbs losses first, up to Rs 12 crore. Remaining loss = 15 - 12 = Rs 3 crore falls on senior holders. Rs 0 and 15 ignores the cap on the subordinate tranche; pro-rata sharing (option 3) ignores the waterfall.

Did you get it right without looking?

One question tells you little. A timed set on Securitization shows your real accuracy, how long you take and where you lose marks.

Practise SecuritizationFree diagnostic mock

More Securitization questions