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In MOONSTAR CO (SEP/DEC 15)
1. In the question, what is it mean by “10% of the collateral value to support tranche as subordinated certificate, with the return being the excess of receipts over payments from the securitization process”
I know they have deducted in the cash flow receivable section, but I do not quite understand what is it mean…..2. Under explanation of calculation of part (A), it says that “holders of the certificates are expected to receive 3.17 million on 18million”. I’m not sure how they get 18million… because I was not able to either get from the textbook or in the answer…..
1. The cash flows receivable is 22M, and this has to then be paid out to the lenders.
For the A, B and C loan notes, the amount to pay is a fixed interest.
However subordinated certificates get whatever is left over (rather than getting fixed interest).
2. The total being raised using the securitisation process is 90% x 200M = 180M.
The subordinated certificates are providing 10% of the amount, which is 18M.(You won’t find this in the textbook, because it is not a ‘standard learning’ question – it is following the instructions in the question itself)
Hi again John,
When talking on securitisation and tranching.
In the question Moonstar, we want to finance acquisition of commercial property $200m. This property generates income of 11% annually.Am I correct when understand this as we cannot receive any income from this activity (commercial property) at all ?
What i mean in details -> 11% of $200m is $22m (do not take into account admin. costs) .
And all of this income goes to finance providers.
If this % of income is lower or higher -> then finance providers, not the Company itself, burden the risks (if lower) or benefits from it (if higher).For example when we raise funding of $200 with fixed 11% as a usual loan to purchase commercial property – If the income from commercial property is 12%, then 1% is the Company’s net income (not accounting tax). But with securitisation, all 12% will now be distributed benefiting subordinate certificate holders?
Am i correct in this?
Thanks
Nick
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