CFA Level I · CFA Level I Exam · Asset-Backed Security (ABS) Instrument and Market Features
In a sequential-pay ABS structure, a securitization has a senior tranche, a mezzanine tranche and a subordinated tranche. Credit losses on the collateral pool are most likely absorbed first by the:
The subordinated tranche absorbs losses first. In a senior-subordinated ABS structure, credit losses are allocated from the lowest-ranking tranche upward, so the mezzanine bears losses only after the subordinated tranche is exhausted, and the senior tranche is protected the most.
- Asubordinated trancheCorrect
- Bsenior tranche
- Cmezzanine tranche
Explanation
In a senior-subordinated structure, losses are allocated from the bottom of the capital structure upward. The subordinated (junior) tranche absorbs losses first, then the mezzanine, and the senior tranche last. This is why the senior tranche can obtain the highest credit rating.
Did you get it right without looking?
One question tells you little. A timed set on Asset-Backed Security (ABS) Instrument and Market Features shows your real accuracy, how long you take and where you lose marks.
More Asset-Backed Security (ABS) Instrument and Market Features questions
- A court finds that an originator kept effective control over receivables it transferred to an SPE and treats the transfer as a secured loan …
- Compared with a cash flow CDO, a synthetic CDO is most likely to obtain its exposure to the reference debt obligations through:
- In a CDO, the tranche that is most likely to receive the highest expected return, and absorb losses first, is the:
- A credit card receivables ABS is in its lockout (revolving) period. During this period, principal payments collected from cardholders are mo…
- A CDO has total collateral of 200 million with an equity tranche of 20 million, a mezzanine tranche of 60 million and a senior tranche of 12…
- In a securitization, the servicer is most likely responsible for: