Hi BT,
I’m working with both BT and Kaplan on PART 2, since BT does not provide material on the Malz readings, I could only rely on Kaplan since I have not purchased the core reading.
Unsure about the actual book, but in Kaplan 2019(yes still using the 2019 as nothing 2020 is available yet…) part 2 book 2 page131, fig 23.1 on Malz Cp.9, the sequence of the waterfall goes:
interest income from the 1000 loans
is reduced by
coupon payments to the senior and the mezzanine tranche
the balance/excess is FIRSTLY allocated to the EQUITY tranche, not to the trust account.
Which indicates:
Interest Income→Senior & Mezzanine Tranche→Equity Tranche→Trust,
in this case the OC Trigger is satisfied and there is remaining available for allocation to the trust after satisfying equity tranche.
However when it comes to the next L.O where the 3-tiered structure is quantified,
interest income on the collateral, Lt
less
coupon payments to senior and mezzanine tranche, B
If Lt-B is greater than 0, and greater than K, which is the maximum allowable diversion to trust, the remaining Lt-B-K is then allocated to equity holders.
Which indicates:
Interest Income→Senior & Mezzanine Tranche→Trust→Equity Tranche,
in such sequence, the Trust account is fill in the first place then the excess goes to equity holders.
Therefore, my question is, what is the true sequence of the waterfall?
Which, the Equity tranche or the Trust account, gets the priority?
Personally, I’m more prone to the Trust account first sequence as it seems more reasonable to me.
Little suggestion to BT, if you could, please provide materials on the Malz readings, especially on the single factor model as its difficult to understand and the Schweser is really poor on the topic.
I’m working with both BT and Kaplan on PART 2, since BT does not provide material on the Malz readings, I could only rely on Kaplan since I have not purchased the core reading.
Unsure about the actual book, but in Kaplan 2019(yes still using the 2019 as nothing 2020 is available yet…) part 2 book 2 page131, fig 23.1 on Malz Cp.9, the sequence of the waterfall goes:
interest income from the 1000 loans
is reduced by
coupon payments to the senior and the mezzanine tranche
the balance/excess is FIRSTLY allocated to the EQUITY tranche, not to the trust account.
Which indicates:
Interest Income→Senior & Mezzanine Tranche→Equity Tranche→Trust,
in this case the OC Trigger is satisfied and there is remaining available for allocation to the trust after satisfying equity tranche.
However when it comes to the next L.O where the 3-tiered structure is quantified,
interest income on the collateral, Lt
less
coupon payments to senior and mezzanine tranche, B
If Lt-B is greater than 0, and greater than K, which is the maximum allowable diversion to trust, the remaining Lt-B-K is then allocated to equity holders.
Which indicates:
Interest Income→Senior & Mezzanine Tranche→Trust→Equity Tranche,
in such sequence, the Trust account is fill in the first place then the excess goes to equity holders.
Therefore, my question is, what is the true sequence of the waterfall?
Which, the Equity tranche or the Trust account, gets the priority?
Personally, I’m more prone to the Trust account first sequence as it seems more reasonable to me.
Little suggestion to BT, if you could, please provide materials on the Malz readings, especially on the single factor model as its difficult to understand and the Schweser is really poor on the topic.
