Credit Technical (Senior/Subordinate Structure)
The SPV issues two (or more) branches of securities establishes a predetermined priority in their servicing, whereby first losses are borne by the subordinate tranches (at times the originator itself). Apart from providing holders of senior debt, credit tranching also permits targeting investors with specific preferences.
The difference between the yield on the assets and the yield to the investors called excess spread. In its simplest form, a spread account traps the excess of all running costs of securitisation within the Spy up to a specified amount sufficient a given rating or Credit equity requirement. Only realisations in excess of this specified rooted back to the originator. This amount is returned to the originator after the principal and interest to the investors.