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FNCE 738
Amex Case
April 7, 2008
Andrew Ahn
Jarrett Epstein
Elizabeth Lambos
Scott Litvinoff
Avery Sheffield
Matt Ulman
For the "stress test" of the securitization we assumed that A would be paid an interest rate that was the average spread for AAA securities over the five year treasury rate. For B it was assumed that the credit spread would be twice that of A. Additional assumptions taken from Exhibit 13 and various notes in the case are summarized in the following table.
high | low | |
5 year note rate | 6.40% | |
yield spread on A tranche | 0.525% | 0.375% |
monthly rate on a tranche | 0.560% | 0.548% |
monthly interest payments to A (millions) | 5.5954 | 5.4778 |
yield spread on B tranche | 1.050% | 0.750% |
monthly rate on a tranche | 0.601% | 0.577% |
monthly interest payments to B (millions) | 0.21021 | 0.20200 |
base case | 75% increase | |
average life of recievable (days) | 46.75 | 81.82 |
payment rate | 71.50% | 40.86% |
payments per month for A and B | 740.025 | 422.8714286 |
cash collected from payments | 22.20075 | 12.68614286 |
base case | 75% increase | |
monthly default rate | 0.0830% | 0.1447% |
estimated default amount (total) | 2.073845286 | 3.616913545 |
amount borne by "investor interest" | 0.858571948 | 1.497402208 |
monthly servicing cost | 1.709386647 | 2.971380174 |
total costs before interest | 2.567958596 | 4.468782382 |
monthly interest to A and B (average) | 5.74 | 5.74 |
For the three scenarios in the prompt, it seems as though that in each scenario there will still be cash left over in excess of the reserve amount for each of the scenarios in isolation as well as if all three adverse shocks occurred at the same time.
The effect of the time to service receivables increasing would primarily be to decrease both the total cash spent by the master trust on new receivables during the period, as well as the cash put aside in the "yield component". Depending on...