Question: A corporation is considering a securitization and is considering two possible credit enhancement structures backed by a pool of automobile loans. Total principal value underlying the asset-backed security is $300 million
| Principal Value for: |
Structure I |
Structure II |
| Pool of automobile loans |
$304 million |
$301 million |
| Senior Class |
$250 million |
$270 million |
| Subordinated Class |
$50 million |
$30 million |
(a) which structure would receive a higher credit rating and why?
(b) what forms of credit enhancement are being used in both structures?