Question: A corporation is considering a securitization and is considering two possible credit enhancement structures backed by a pool of automobile loans. Total principal value underlying

A is considering a securitization and is considering two possible credit enhancement structures backed by a pool of automobile loans. Total principal value underlying the asset-backed security is $300 million.

Answer the below questions.
(a) Which structure would receive a higher credit rating and why?
(b) What forms of credit enhancement are being used in both structures?

Principal Value for Pool of automobile loans S304 n S301 million Senior class Subordinated class StructureI Structure II S250 million S270 million $50 million S30 million

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