"The quality of the note buyers, the blended note rate, the overcollateralization
target and the adjusted yield are all extraordinary and seem to signal that LendingPoint's plan to issue periodic securitization will be welcomed in the markets," Burnside said.
The rating reflects initial credit enhancement levels, excess spread, four levels of coverage tests including overcollateralization
ratio and interest coverage tests, and an interest diversion test.
Credit enhancement on the Notes consists of i) overcollateralization
ii) yield supplement overcollateralization
iii) subordination (in the case of Class A, Class B and Class C notes) and iv) amounts on deposit in a reserve account.
A two-notch recovery uplift is assigned as the underlying assets are viewed as standard and the relied upon Overcollateralization
Components (OC) of 10.5% is greater than the 7.5% credit loss in a 'AAA' stress scenario.
The agreement is structured as a modified coinsurance treaty with counterparty protections around investment guidelines and overcollateralization
established to meet Lincoln Financial's risk management objectives.
The cash surplus account (due to the initial overcollateralization
of the transaction), along with the cash reserve from the bank guarantee collectively stand at 18.3 per cent of the outstanding bond.
Credit enhancement for the senior and subordinate notes consists of overcollateralization
and projected minimum excess spread, while the senior notes also benefit from subordination provided by the class B notes.
, excluding excess spread; and (ii) external
The first shaky principle is that if the return on these bonds is highly correlated, so that they all default at the same time, overcollateralization
is not much help.
The undercollateralization of 2.00% will grow to 1.50% overcollateralization
(OC), bringing the target hard CE to the class A notes to 9.50%.
While 33 of 35 Fitch-rated CREL CDOs reported delinquencies in February, a 1.3 percent to 40.6 percent range, 15 CREL CDOs were failing at least one overcollateralization
test--two more CDO overcollateralization
(OC) failures than in January.
Instead of using subordination, the senior liability class in the structure can also be supported by overcollateralization
. In this structure, the rated class is supported by an excess of assets.