A commercial mortgage back security CMBS is secured ona set of properties worth a total of $500 million, and its total outstanding balance is $400M. There are three tranches in this CMBS: a senior tranche with an outstanding balance (OSB )$200M, messanine tranche with OSB $150M and a junior tranche with OSB $50M.
a. What LTV ratio in a first mortgage whole loan issuance would correspond to the default risk structure of each tranche?
b. How do the risk structures of the messanine tranche and junior tranche differ from that a first-mortgage whole loan issuance with the same LTV ratio?
c. The WAC for the entire CMBS is 11% per year. The senior tranche commands a coupon of 6% per year, the mezzanine tranche commands a coupon of 10% per year, and the junior tranche commands a coupon of 15% per year. Assuming no default, how much money is left each year after all par-valued tranches have been paid off, and what can the CMBS issuer do with this money