External credit enhancement, Financial Management

Assignment Help:

It is in the form of third-party guarantees which protect against losses up to a particular fixed level. This is available in the form of a corporate guarantee, a letter of credit from a bank or a bond insurance. Though the third-party guarantee is referred to as "first loss protection", it is generally not used as a primary protection.

For example, if in a Rs.100 crore asset-backed securities deal, 10% is guaranteed, then for any losses that are in excess of 10%, the sponsor will not be liable. Thus, we see that an asset-backed security which has an external credit support is prone to credit risk of the third-party guarantor. If the third-party guarantor undergoes a downward change in credit rating, then the rating of the issue will also be lowered even if the performance of the entire structure is intact. This is because of the general practice the rating agencies follow by which the credit quality of the issue is assessed to be only as good as the lowest link in credit enhancement.


Related Discussions:- External credit enhancement

Operating cycle, Discuss the applicability of the operating cycle to poultr...

Discuss the applicability of the operating cycle to poultry business in Uganda(consider broilers)

Why investment decision depend on financing decision, Why investment decisi...

Why investment decision depend on financing decision All these decisions interact, investment decision cannot be taken without taking the financing decision, working capital de

Calculate average amount of working capital required, X & Y is desirous to ...

X & Y is desirous to purchase a business and has consulted you, and one point on which you are asked to advice them, is the average amount of working capital which will be required

Time value of money, Can you help me out on the Time value of money????? ...

Can you help me out on the Time value of money????? I need urgent help on this topic...

Accrual bond, It is a bond that does not give periodic interest payments. I...

It is a bond that does not give periodic interest payments. In spite of that, interest is added to the principal balance of the bond and is either paid at maturity or, at some poin

Explain why preferred stock is similar to debt than equity, Question: a...

Question: a. Le Mustang company Ltd is foreseeing a growth rate of 15 per cent per annum in the next three years. It is likely to fall to 12 per cent in the fourth year. Afte

Liquidity risk, what role do core deposits play in predicting the probabili...

what role do core deposits play in predicting the probability distribution of net deposit drains

Principles of good regulation, Principles of Good Regulation While perf...

Principles of Good Regulation While performing its functions, the FSA needs to take into account certain matters which are termed the ‘principles of good regulation'. The matte

Explain short- and long-term financing mix, Q. Explain Short- and long-term...

Q. Explain Short- and long-term financing mix? In forming a fresh business there is no business history to present to the bank thus there is additional uncertainty which will n

Cost of preference share capital, I need assistance on Cost of preference s...

I need assistance on Cost of preference share capital in financial management? Can someone help me to solve this proble with example It's Urgent!!!!!!!

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd