Overcollateralization

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Overcollateralization

The practice or process of placing an asset as collateral on a loan where the value of the asset exceeds the value of the loan. For example, a person could pledge a farm (worth $10 million) on a loan for $5 million. Usually, however, the value of the asset only exceeds the value of the loan by 10-20%. Overcollateralization reduces the risk for the lender and improves the borrower's creditworthiness. It is used most commonly when a bond issuer wishes to improve its credit rating.
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MF Global's customer positions on CME Group exchanges were and continue to be substantially over-collateralized at CME Clearing.
Be careful not to allow one lender to become unduly over-collateralized by taking a lien against multiple stores where the financed amount is not warranted, as this will limit your ability to obtain capital to finance growth initiatives by offering an additional store as collateral.
Banks and corporations that invested in these complex, over-collateralized "AA rated mortgages later found out that they were worth nothing," she continued.
By contrast, products that advance funds for benefit payments from the provider's general account leave the portfolio over-collateralized.
These securities are normally over-collateralized so that income from the mortgages is sufficient to ensure timely payment of interest and principal to the security holders.
Fitch attributes these recovery outcomes to a mix of three key factors: 1) the over-collateralized status of pre-petition ABLs; 2) a security interest in liquid collateral that was much sought-after by debtor-in-possession (DIP) lenders as well; and 3) lender dominion over cash which helped reduce the ABL balances (or claim size).
In addition, the transaction is now well over-collateralized with $55.
The 13% secured notes are the strongest piece of debt in the capital structure and well over-collateralized (also share lien in the Mirage, Bellagio and MGM Grand on pro rate basis with other secured notes).
The loans granted to Coahuila remain performing due to the fact that they are correctly over-collateralized, and Fitch expects this situation would not change throughout the restructuring process, allowing the bank to maintain a low impairment ratio (0.
In the event the subordinate classes are completely written off, further mortgage losses from over-collateralized mortgage groups will be allocated to under-collateralized mortgage groups until the senior classes of each group equal the balance of their respective mortgage pools.
The pool of collateral securities will always be over-collateralized and the market value will be marked on a daily basis by Bank of New York Mellon, the tri-party agent.
The TALF loans will be over-collateralized with investments in asset-backed securities (ABS), with the intention of producing a relatively close asset/liability match that generates a positive spread.