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Hi John. In a, when the income will be reduced to 5% and the subordinated certificates will receive 11.5% instead of 71.6%, why the certificates holder receive nothing and c rated loan notes will now receive the full income? How to arrive at $18.83m?
You have misread the answer!!!
If the income reduces by 5% to $20.90 M, then the A, B and C loans still get their full interest, and there is 2.07M left for the subordinated certificates.
If the income was to reduce even more, then there comes a time when there is nothing left for the subordinated. This is when there is only 18.63M income which if you look at the answer is the amount needed to pay the A, B and C loan interest but leaves nothing for the subordinated.
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