Expected Loss

3-year Notional % of
Credit Default Reference
Rating Rate (%) Portfolio
AAA 0 1.00
AA 0 7.00
A 0.05 41.00
BBB 0.62 51.00
Total

3-year W.A. Default Rate for Portfolio:

3-year W.A. Loss Rate (if recovery is 40%):

d Loss

3-year Weighted-
average Default Rate
on Reference
Portfolio (%)

0.000
0.000
0.021
0.316
0.337

0.337

0.202
 Expected Loss v. Subordination

Subordination in Subordination
Multiple of EL
Layer $ MM in %
OECD Bank 320 8.00% 39.60
Class A Notes 230 5.75% 28.47
Class B Notes 170 4.25% 21.04
Class C Notes 100 2.50% 12.38
Class D Notes 40 1.00% 4.95

Remember: Total Expected loss = 0.202%

 Defaults v. Subordination

First default
Subordination Subordination in affecting this layer
Layer in $ MM %
OECD Bank 320 8.00% 27
Class A Notes 230 5.75% 20
Class B Notes 170 4.25% 15
Class C Notes 100 2.50% 9
Class D Notes 40 1.00% 4

Remember: Each exposure = 0.5% of portfolio; Recovery = 40%

So, e.g. 9 defaults → 4.5% of portfolio in default → loss of 2.7%

 4-obligor Probability Distribution

Cumulative
Number of
Scenario Default
Defaults
Probability Probability
4 0.0000% 100.0000%
3 0.0004% 100.0000%
2 0.0588% 99.9996%
1 3.8812% 99.9408%
0 96.0596% 96.0596%

Individual Default Pr. 1.00%

Individual Survival Pr. 99.00%

Combining 3 entities out of A, B, C, D: ABC, ABD, ACD, BCD

More generally, COMBIN (N,R) = NCR = N!/ [(R! * (N-R)!]

 Distribution

Cumulative
Probability
Inverted
0.0000%
0.0004%
0.0592%
3.9404%
100.0000%

C, D: ABC, ABD, ACD, BCD

= NCR = N!/ [(R! * (N-R)!]

 200-obligor Probability Distribution

Number of Scenario Cumulative Cum Prob

Defaults Probability Probability Inverted
200 #NUM! #NUM! #NUM!
13 0.00% 100.00% 0.00%
12 0.00% 100.00% 0.00%
11 0.00% 100.00% 0.00%
10 0.00% 100.00% 0.00%
9 0.02% 100.00% 0.02%
8 0.08% 99.98% 0.10%
7 0.33% 99.90% 0.43%
6 1.17% 99.57% 1.60%
5 3.57% 98.40% 5.17%
4 9.02% 94.83% 14.20%
3 18.14% 85.80% 32.33%
2 27.20% 67.67% 59.54%
1 27.07% 40.46% 86.60%
0 13.40% 13.40% 100.00%

Individual Default Probability 1.00%

Individual Survival Probability 99.00%
Total Entities 200
 Cost of Capital Comparison

Annual cost under SCLO (in $MM) 6.70

Cost under CAPM (in $MM)

Equity market return 10.00%
Bank ABC equity beta 0.9
Risk-free rate 5.00%
Cost of common equity 9.50%
Annual Cost of $221 MM of common equity 21.00
 Capital Requirements for Noteholders

Size (in Risk Required Capital (in

Tranche $MM) Weight $MM)
Class A Notes 90 7% 0.50

Class B Notes 60 15% 0.72

Class C Notes 70 20% 1.12

Class D Notes 60 425% 20.40

Total 22.74