Sep/Dec 2015 Moonstar Co

For the C-rated loan notes to get their full income, the total available needs to be 18.63 (as per the table in the answer). This is after the service charge of 0.20, so it needs income to be 18.83. 18.83 is 14.4% less than the 22.00 that has been forecast.

Hi, Sir How to find the return of 9.4% ?

Hi again, Sir Balance to Subordinated 2.07m due to rental income is 5% lower than forcast, giving return 11.5%, below the return of B & C ( 12% , 13%) . How is that holder of certificate will receive nothing and below? Also, why holder of C rated loan will not receive full income, isn't the income of c = 3.51?

The subordinated certificates only get any income that is remaining after paying the interest on the other loan notes. The company has to pay 18.63m to the other loan notes, which means that they need to earn 18.83m (0.20 more because of the service charge). If they earn more than this the excess goes to the subordinated certificates, but if they earn less then the subordinated get nothing (and the C rate loan note holders will suffer as well). They are investing $200M, and therefore in order to earn at least 18.83M they need to be getting a return on the 200M of at least 18.83/200 = 9.4%.

The return of 17.6% am of the view that it should have been 17.01% (3.17/18.83*100) would you clarify the computation

17.6% is correct. The subordinated certificates invested 10% x 90% x $200m = 18m. They are getting a return of 3.7m, which is 3.17/18 = 17.6%