Special Purpose Vehicles

[welsh_owen]

Hi,

On page 14 of chapter 14 there is a neat diagram setting out how SPVs are structured.

Just to make sure that I have the correct understanding I'd like to ask a question about the annual 'coupon' payment that the investors receive. Would I be right in thinking this is a floating rate coupon based on the annual Libor payments made in exchange for providing the counterparty with the total returns on the collateral assets?

I'm assuming that the coupon will be reduced slightly to take account of the premium paid to the 'Credit Enhancement Agency'.

 

[Oxymoron]

H

Just to make sure that I have the correct understanding I'd like to ask a question about the annual 'coupon' payment that the investors receive. Would I be right in thinking this is a floating rate coupon based on the annual Libor payments made in exchange for providing the counterparty with the total returns on the collateral assets?

I'm assuming that the coupon will be reduced slightly to take account of the premium paid to the 'Credit Enhancement Agency'.

The coupon to the investors could either be fixed or floating, depending upon how the securitization deal is structured (which is usually on an ultra conservative basis).

The payment to the investor largely depends on how the portfolios behave. If the portfolio over-performs, there is a high chance principal to the investor could be prepaid much faster.