Capital structure question

[mbbx5va2]

Hi Suppose have capital structure of senior: 100m, Mezzanine; 50m and Equity: 20m. what's credit enhancement of senior tranche? Looking for example similar or pointers on solution thanks

 

[gsarm1987]

Hi Suppose have capital structure of senior: 100m, Mezzanine; 50m and Equity: 20m. what's credit enhancement of senior tranche? Looking for example similar or pointers on solution thanks

Credit enhancement can take various forms, such as over-collateralisation, excess spread, subordination, and guarantees.

In this case, the credit enhancement for the senior tranche is $70 million due to subordination. Mezzanine and equity tranches absorb losses before affecting the senior tranche, providing this protection.

 

[mbbx5va2]

thanks that makes sense and just as i thought