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CS Professional · Strategic Management and Corporate Finance · Sources of Corporate Funding

Meridian Finance pools ₹200 crore of vehicle loans and transfers them to a special purpose vehicle (SPV), which issues pass-through certificates to investors. The loans pay ₹30 crore total collections in a year, of which ₹12 crore is interest and ₹18 crore is principal, and the SPV charges ₹1 crore as servicing fee out of interest. If investors are entitled to all collections net of the fee, what amount is distributed to investors that year, and what is the outstanding pool principal at year end, assuming no defaults or prepayments beyond the stated principal?

Investors receive ₹29 crore, being total collections of ₹30 crore less the ₹1 crore servicing fee, and the pool principal falls to ₹182 crore because only the ₹18 crore principal component reduces the pool. Interest collections do not reduce the outstanding principal.

  1. A₹29 crore distributed; ₹182 crore outstandingCorrect
  2. B₹30 crore distributed; ₹182 crore outstanding
  3. C₹29 crore distributed; ₹170 crore outstanding
  4. D₹11 crore distributed; ₹182 crore outstanding

Explanation

Distribution = 30 - 1 = ₹29 crore (interest net of fee 11 plus principal 18). Outstanding principal = 200 - 18 = ₹182 crore. Option B ignores the servicing fee; option C deducts the interest from principal; option D distributes only net interest and omits the principal repayment.

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