1. Are recovery assumptions important when modeling a structured finance transaction? If so, what would you consider to be the most two parameters? Why?

2. You are structuring a $100 Million ABS auto deal. You expect the loss to liquidation to be 1.5%. The WAC of the loans is 10% and the WAL is 3 years. The bond’s single tranche pays 7%. Fees on the deal are 1%. The deal is to be structured to a “AAA” standard. How much additional collateral, if any, would be required for this deal? Show your calculations and detail your assumptions.

Answer rating: 100% (QA)

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