modeling-credit-enhancement-requirements
Installation
SKILL.md
Modeling Credit Enhancement Requirements
When To Use
- Sizing subordination levels for new ABS, MBS, or CLO issuances
- Determining attachment and detachment points for rated tranches
- Stress-testing existing credit enhancement against revised loss assumptions
- Responding to rating agency feedback on proposed capital structures
- Evaluating whether overcollateralization, excess spread, or reserve accounts provide sufficient protection at target rating levels
Inputs To Gather
- Collateral pool data: loan-level tape with balances, rates, LTVs, FICOs, seasoning, geographic concentration, and obligor industry (CLO)
- Historical performance: static pool loss curves, delinquency roll rates, prepayment speeds, recovery rates and recovery lag by vintage
- Target rating levels: desired ratings per tranche (e.g., AAA/Aaa senior, BBB/Baa2 mezz)
- Rating agency methodology: applicable criteria document and version (e.g., S&P LEVELS model for RMBS, Moody's CDOROM for CLO, Fitch multiples approach for ABS) [VERIFY methodology version is current]
- Deal structural features: waterfall priority, interest/principal payment mechanics, triggers (OC tests, delinquency triggers), turbo provisions, liquidity facilities
- Market benchmarks: comparable deal credit enhancement levels by asset class and rating tier