CMA Final · Strategic Financial Management · Securitization
Meera Finance securitizes a loan pool of ₹50 crore through an SPV. The SPV issues Pass Through Certificates (PTCs) with total face value of ₹46 crore, and the originator provides a cash collateral of ₹4 crore as credit enhancement. What is the cash collateral as a percentage of the pool?
The credit enhancement is 8 percent of the pool. Cash collateral of ₹4 crore divided by the pool of ₹50 crore gives 8 percent. Using the PTC value of ₹46 crore as the base would wrongly give 8.70 percent.
- A8.70%
- B8.00%Correct
- C9.00%
- D7.40%
Explanation
Cash collateral is divided by the pool value: 4/50 = 8%. The 8.70% option wrongly uses 4/46, the PTC value as the base. The pool is the correct base.
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