Credit enhancement

Which of the following is NOT a form of internal credit enhancement? A) A senior/subordinated structure. B) Reserve funds. C) Sequential-pay structure.

C. That is for prepayment risk repackaging

c. it has to do with who gets paid first, not IF they get paid. i hope

I concur

yes you’re all correct

Just as I finished answering this incorrectly, I look down at the next question on my list: “Explain why a senior-subordinate structure is a form of internal credit enhancement.” I still would have guessed B. FML

senior / sub is credit enhancement from the senior bond holders perspective. in default, they are on the top of the list to get paid