Looking to bring back some knowledge that I kind of forgot for the past few years. I’ve been reading around but i trust my CFA candidates and holders. I failed 3 several times sigh
In a CDO structure, correct me if I’m wrong, payment of collateral minus senior debt payment minus jr debt payment equals to equity. The payment on collateral is the actual payment, including the prepayment? Debt instrument payment is just the interest payment (fixed or float)
What happens if the collateral payment term is shorter than the debt payment term? So let’s say collateral for 10 years but there’s a 10% prepayment speed, that reduces the principal amount. This leads to shorter payments while my debt payments are 10 years.
What did I miss? How do I subtract if there’s no more collateral? If the prepayment speed is really fast, does this mean it all gets passed to equity? What should I do with all the debt tranches?