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 $304 million $301 million Senior class $250 million $270 million Subordinated class $50 million $30 million (a) Which structure would receive a higher credit rating and why (b) What forms of credit enhancement are being used in both structures

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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 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	$304 million	$301 million
Senior class	$250 million	$270 million
Subordinated class	$50 million	$30 million

(a) Which structure would receive a higher credit rating and why?

(b) What forms of credit enhancement are being used in both structures?

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