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CMA Final · Strategic Financial Management · Securitization

Sagar Finance securitises a loan pool of Rs 200 crore. The SPV issues Senior tranche Rs 150 crore, Mezzanine tranche Rs 30 crore and the balance as Equity (first-loss) tranche. Pool losses over the life amount to Rs 22 crore. Losses are absorbed first by Equity, then Mezzanine, then Senior. The loss borne by the Mezzanine tranche is:

Equity is 200 less 150 less 30, which is Rs 20 crore. It absorbs the first Rs 20 crore of the Rs 22 crore loss, leaving Rs 2 crore for the Mezzanine tranche. Senior is untouched. The Mezzanine loss is therefore Rs 2 crore.

  1. ARs 12 croreCorrect
  2. BRs 22 crore
  3. CRs 2 crore
  4. DRs 0

Explanation

Equity tranche = 200 - 150 - 30 = Rs 20 crore. Loss of Rs 22 crore first wipes out Equity Rs 20 crore; the remaining Rs 2 crore falls on Mezzanine. So Mezzanine bears Rs 2 crore, not Rs 12 crore.

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