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Hi sir
When calculating the cash outflow to the A rated tranche, the swap in used as a basis for calculating.
Is this because we are looking at the return from GoSlo’s perspective?
As I would assume that the investors in this tranche will be paid based on L+140 bps, as this is the structure from the outset?
The question asks us to calculate the returns of each of the tranches, so I would have expected the return to be calculated based on what the investors actually receive (eg L+140 bps) & the swap would not have been relevant to the solution??
Same question…when calculating the effect of the 1% reduction in the returns generated by the pools, I would have thought that we reduce the 10.5% by 1%, not reduce the value of $200m by 1%??
The swap is in the calculation in order to calculate how much is left for the subordinated certificates.
The A tranche are receiving L + 1.40%. I think the layout has confused you. He has kept LIBOR in a separate column because although they will be paying L to the A-rated bonds, the will be receiving L from the swap. So it is only the net 1.4% that comes into the calculation of what is left for the subordinated loans.
Thanks sir, I await your response on the second part, I know you are extremely busy at the minute!
It is not very good wording, but it does say a reduction of 1% in the returns generated. The returns generated are 21.00, so a 1% reduction brings them down to 20.79M
Hello John,
The answer for this question also says that 3,62 goes to subordinated certificates. I have little idea of what subordinated sertificate is and how it works.I also could not find information about that in the forum, internet and BPP text book… Could you please explain what subordinated certificate is and how cash flow differential in amount of 3,62 creates return on investment of subordinated certificates?
Thank you.
Sorry, no need to reply – I should have been read Securitisation Article First:
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