External Credit Enhancement Homework Help

External Credit Enhancement

They include insurance, third party guarantee and letter of credit.

Insurance

Full insurance is provided against losses on the assets. This tantamounts to a 100 per cent of a transaction's principal and interest payments. The issuer of the insurance looks initial premium or other support to cover credit losses.

Third-Party Guarantee

This method involves a limited/full guarantee by a third party to cover that may arise on the non-performance of the collateral.

Letter of Credit

For structures with credit ratings below the level sought for the issue, a third provides a letter-of credit for a nominal amount. This may provide either full or partial cover issuer's obligation.

Internet Credit Enhancement

Such form of credit enhancement comprise the following:

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