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CMA Final · Strategic Financial Management · Securitization

Lakshmi Bank securitizes a Rs 100 crore receivables pool and sells it to an SPV at Rs 98 crore. The pool yields 12% p.a. and certificates carry a 10% coupon on Rs 98 crore. The originator provides a cash collateral of 5% of the pool value (Rs 5 crore). In year 1 the pool yields interest as expected on Rs 100 crore; servicing fee is Rs 0.5 crore. What is the excess spread for year 1 (pool interest less coupon less fee)?

Pool interest is Rs 12 crore and certificate coupon is 10% of Rs 98 crore, Rs 9.8 crore. After deducting the Rs 0.5 crore servicing fee, the excess spread is Rs 1.7 crore. The cash collateral does not enter this computation.

  1. ARs 1.7 croreCorrect
  2. BRs 2.2 crore
  3. CRs 2.0 crore
  4. DRs 1.2 crore

Explanation

Pool interest = 12% x 100 = Rs 12 crore. Coupon = 10% x 98 = Rs 9.8 crore. Fee = Rs 0.5 crore. Excess = 12 - 9.8 - 0.5 = Rs 1.7 crore. Rs 2.2 crore ignores the fee; the cash collateral is not part of the spread.

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