PPT Slide

Senior / subordinated structures

• The subordinated class is the first-loss piece absorbing all losses

on the underlying collateral, thus protecting the senior class.

• The senior class is giving up yield to the subordinated class holders.

Example

$100 million deal divided into

$92.25 million senior class

$7.75 million subordinated class

Suppose there is $10 million of losses, the subordinated class

experiences $7.75 million of losses (100% loss) and the senior class

experiences a loss of $2.25 million (2.4% = $2.25 / $92.25 loss).