Module 18: Asset-Backed Security Instrument and Market Features

28 questions
Question 1 of 28

Assertion (A): Covered bonds usually carry lower credit risk and lower yields than otherwise similar ABS.
Reason (R): Covered bonds usually use a single bond class per cover pool.

Question 2 of 28

Consider the following statements about CDOs and CLOs: I. The prevailing CDO structure is the CLO. II. A CLO collateral manager may buy and sell assets to meet transaction obligations. III. Recourse in a CLO is typically limited to the collateral pool, with minimal recourse to the original issuers. How many of the above are most accurate?

Question 3 of 28

Consider the following redemption-regime statements: I. Hard-bullet covered bonds trigger default and payment acceleration if scheduled payments do not occur. II. Soft-bullet covered bonds delay default until a new final maturity date. III. Conditional pass-through covered bonds convert to pass-through securities after the original maturity date if payments remain outstanding. How many of the above are most accurate?

Question 4 of 28

Assertion (A): Solar ABS can appeal to ESG-oriented investors.
Reason (R): The proceeds finance renewable-energy and home-efficiency projects that can qualify as green investments.

Question 5 of 28

A hypothetical CLO promises USD 700 million to debt tranche investors and buys USD 840 million of bank loans. The overcollateralization ratio is closest to:

Question 6 of 28

In the credit card ABS example, pool losses must exceed CHF 75 million before Tranche C is affected. Relative to a CHF 900 million ABS issue, that threshold is closest to:

Question 7 of 28

Assertion (A): A CDO is a leveraged transaction.
Reason (R): Equity tranche holders use borrowed funds generated by issued bond classes in an effort to earn returns above funding cost.

Question 8 of 28

Relative to otherwise similar ABS, covered bonds most likely offer lower yields because they:

Question 9 of 28

Assertion (A): Overcollateralization provides a cushion against collateral defaults.
Reason (R): Overcollateralization can help make tranches more attractive to investors.

Question 10 of 28

A solar ABS is backed by collateral with a carrying value of USD 143.9 million and has ABS principal of USD 54.4 million. The collateral-to-ABS multiple is closest to:

Question 11 of 28

A rapid amortization clause in a credit card ABS is most likely triggered to protect investors when:

Question 12 of 28

A securitization has EUR 1,200 million of collateral backing EUR 1,000 million of issued bonds. The amount of overcollateralization is closest to:

Question 13 of 28

Consider the following statements about non-amortizing ABS collateral: I. During the revolving period, principal repayments are reinvested to replenish the pool. II. During the revolving period, noteholders typically receive scheduled principal repayments from the receivables. III. Once the amortization period starts, repaid principal continues to be reinvested in new receivables. How many of the above are most accurate?

Question 14 of 28

If the average loan in an ABS pool generates 8% and the securities issued from the pool pay 6%, the excess spread is closest to:

Question 15 of 28

Consider the following forms of support in securitization: I. Cash collateral accounts. II. Letters of credit. III. Overcollateralization. How many of the above are among the main internal credit enhancements emphasized in the module?

Question 16 of 28

A securitization structure in which losses first wipe out the lowest tranche before affecting senior notes is most likely an example of:

Question 17 of 28

Consider the following statements about covered bonds: I. The cover pool remains on the issuer's balance sheet. II. Covered bond investors have dual recourse. III. Covered bonds typically remove assets from the issuer's balance sheet in the same way as true securitizations. How many of the above are most accurate?

Question 18 of 28

German rules require covered loan collateral pools to be overcollateralized by at least 2% of the economic value of outstanding covered bonds. If outstanding covered bonds have an economic value of EUR 100 million, the minimum collateral pool economic value is closest to:

Question 19 of 28

Consider the following statements about CLO protections: I. If a performance test fails, principal may be redirected to the senior tranche. II. An overcollateralization test can divert cash away from equity and junior debt toward senior debt investors. III. Equity tranches usually have the lowest claim on CLO cash flow distributions. How many of the above are most accurate?

Question 20 of 28

Which of the following most accurately distinguishes a CDO from a CMO in the module's discussion?

Question 21 of 28

Assertion (A): Covered bonds usually have several tranches with varying default exposure.
Reason (R): Covered bonds generally use a single bond class per cover pool.

Question 22 of 28

A CLO tranche with the lowest claim on cash flows and no set coupon is most likely the:

Question 23 of 28

Assertion (A): During the revolving period of a credit card ABS, investors are exposed to prepayment risk from the inception of the pool.
Reason (R): Principal collections during the revolving period are reinvested to replenish the collateral pool.

Question 24 of 28

If scheduled payments are missed but the investor's bond does not default until a new final maturity date, the covered bond is most likely:

Question 25 of 28

During the revolving period of a credit card receivable ABS, noteholders most likely receive:

Question 26 of 28

Assertion (A): Risk ratings on securitization tranches are based on the credit risk of the collateral pool and the tranche's priority in absorbing losses.
Reason (R): Market risk of the collateral pool is the main basis for assigning these ratings in the module's tranching discussion.

Question 27 of 28

In the CLT example, an investor holds EUR 3 million of Class B notes at MRR + 1.50% and EUR 2 million of Class C notes at MRR + 2.50%. If MRR is 4.0% and there are no defaults, the investor's total annual interest is closest to:

Question 28 of 28

Consider the following credit enhancement features: I. Overcollateralization means collateral exceeds the face value of the issued bonds. II. Excess spread can absorb collateral shortfall or build reserves. III. Letters of credit are one of the three main internal credit enhancements emphasized in the module. How many of the above are most accurate?