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  • 1 - Assignmen-Tmezzanine Tranches of The ABS CODs

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    ajambar khatri
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    The document discusses mezzanine tranches of asset-backed securities (ABS). It notes that 25% of the ABS is allocated to BBB-rated mezzanine tranches positioned between senior and equity tranches. It explains that AAA-rated senior tranches will receive promised returns and principal as long as losses on the underlying assets are less than 20% because more junior tranches will absorb the losses. AAA tranches of the ABS CDO shown are riskier, as they will receive promised returns only if losses are 10.25% or less, meaning mezzanine tranches must absorb 5.255% in losses.

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    1 - assignmen-tMezzanine tranches of the ABS CODs

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    The document discusses mezzanine tranches of asset-backed securities (ABS). It notes that 25% of the ABS is allocated to BBB-rated mezzanine tranches positioned between senior and equity tranches. It explains that AAA-rated senior tranches will receive promised returns and principal as long as losses on the underlying assets are less than 20% because more junior tranches will absorb the losses. AAA tranches of the ABS CDO shown are riskier, as they will receive promised returns only if losses are 10.25% or less, meaning mezzanine tranches must absorb 5.255% in losses.

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    © All Rights Reserved
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    5 views1 page

    1 - Assignmen-Tmezzanine Tranches of The ABS CODs

    Uploaded by

    ajambar khatri
    The document discusses mezzanine tranches of asset-backed securities (ABS). It notes that 25% of the ABS is allocated to BBB-rated mezzanine tranches positioned between senior and equity tranches. It explains that AAA-rated senior tranches will receive promised returns and principal as long as losses on the underlying assets are less than 20% because more junior tranches will absorb the losses. AAA tranches of the ABS CDO shown are riskier, as they will receive promised returns only if losses are 10.25% or less, meaning mezzanine tranches must absorb 5.255% in losses.

    Copyright:

    © All Rights Reserved
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    of 1

    8.

    18
    Given,

    We have Mezzanine tranches of the ABS CODs

    65% is allocated to AAA tranches that is senior tranches

    25% is allocated to BBB tranches that is Mezzanine tranches

    And, 10% is allocated equity tranches

    Following is the pictorial form of ABSs Mezzanine Tranches which is again categories in the
    form of senior tranches, mezzanine tranches and equity tranches.

    A mezzanine tranche is a small layer positioned between the senior tranche and a junior tranche. In The
    figure the AAA- rated tranches of ABS can expect to receive its promised return and get its
    principal back if losses on the underlying portfolio of assets are less than 20% because all losses
    of principal would then be absorbed by the more junior tranches. The AAA- rated tranches of
    the ABS CDO in figure is more risky. It will receive the promised return and gets its principal
    back if losses on the underlying assets are 10.25% or risk. This is because a loss of 10.25% of
    means that mezzanine tranches of ABSs have to absorb losses equal to 5.255 of the ABS
    principal. As these tranches have a total principal equal to 15% of ABS principal, they lose
    5.25/15 = 35% of their principal.

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