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 the asset$-$backed security is $$300$

million.

Principal Value for:

Structure I

Structure II

Pool of automobile loans

Senior class

Subordinate class

$$304$ million

$$250$ million

$$50$ million

$$301$ million

$$270$ million

$$30$ million

a$.$ Which structure would receive a higher credit rating and why?

b$.$ What form of credit enhancement is being used in both structures?