Agnelli Industries (Agnelli), a manufacturer of industrial machine tools based in Bergamo, Italy, has 500 million of

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Agnelli Industries (Agnelli), a manufacturer of industrial machine tools based in Bergamo, Italy, has €500 million of corporate bonds outstanding. These bonds have a credit rating below investment grade. Agnelli has €400 million of receivables on its balance sheet that it would like to securitize. The receivables represent payments Agnelli expects to receive for machine tools it has sold to various customers in Europe. Agnelli sells the receivables to Agnelli Trust, a special purpose entity. Agnelli Trust then issues ABS, backed by the pool of receivables, with the following structure:Bond Class A (senior) B (subordinated) C (subordinated) Total Par Value ( millions) 280 60 60 400

Bond Class A is given an investment-grade credit rating by the credit-rating agencies.

Why does Bond Class A have a higher credit rating than the corporate bonds?

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Fixed Income Analysis

ISBN: 9781119850540

5th Edition

Authors: Barbara S. Petitt

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