Asset-Backed Security (ABS) Instrument Market Features Flashcards
What is “over-collateralization”?
A credit enhancement technique where collateral underlying the transaction exceeds the face value of the issued bonds.
What are “Hard-bullet” covered bonds?
A type of security where if payments do not occur according to the original schedule of a covered bond, a bond default is triggered and bond payments are accelerated.
What are “soft-bullet covered bonds”?
A delay in the bond default and payment acceleration of bond cash flows until a new final maturity date, which is usually up to a year after the original maturity date.
What are “conditional pass-through covered bonds”?
The bonds convert to pass-through securities after the original maturity date if all bond payments have not yet been made.
What are “Credit Enhancements”?
Provisions or methods that allow a borrower improve the creditworthiness in a structured transaction.
What are “Internal Credit Enhancements”?
Provisions or methods a borrow initiates to improve their creditworthiness in a structured transaction, such as overcollateralization or express spread.
What is “Excess Spread”?
Surplus difference of yield remaining after payments to bondholders are made after expenses are made and losses are covered.
What is “Credit Tranching”?
An internal credit enhancement where cash flows into a senior / subordinate structure.
What are “External Credit Enhancements”?
Provisions or methods from a third-party that allow a borrower to improve their creditworthiness in a structured transaction.
What are “non-amortizing loans”?
A type of debt where there are no scheduled principal repayments.
What is a “lockout or revolving period”?
For an ABS with a non-amortizing collateral pool, such as credit card debt, it is the period in which the cash proceeds from principal repayments are reinvested in additional loans with a principal equal to the principal repaid.
What are “Rapid Amortization Provisions”?
Provisions in receivable ABS that may require early principal amortization if specific events occur.
What is a “Pre-Funding Period”?
A period that allows the trust to acquire during a certain period of time after the close of a transaction.
What are “Collateralized Debt Obligations”?
Securities backed by a diversified pool of one or more debt obligations.
CDOs can be backed by a broad range of debt.
What are “Collateralized Bond Obligations”?
CDO’s backed by high-yield corporate and emerging-market bonds.
