Payments waterfall: Difference between revisions
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{{a|repack|{{image|waterfall|png|A Counterparty “flipping” yesterday.}}}}The priority of payments waterfall in a [[repackaging]] is an important, but fundamentally dull, piece of engineering, only made interesting, somewhat, when rating agencies intervene sometimes to make life harder for dealers. The idea is to sort out all the agents and their mandatory running costs first, then “senior” creditors — typically the broker as swap counterparty, though this is where rating agencies can intervene — then getting to the Noteholders and if anything is left after that, to the Issuing SPV. | {{a|repack|{{image|waterfall|png|A Counterparty “flipping” yesterday.}} | ||
{{image|flip 1|png|Swap counterparty performs, is in-the-money}} | |||
{{image|flip 2|png|Swap counterparty performs, is out-of-the-money}} | |||
{{image|flip 3|png|Swap counterparty defaults, is in-the-money}} | |||
{{image|flip 4|png|Swap counterparty defaults, is out-of-the-money}}}}The priority of payments waterfall in a [[repackaging]] is an important, but fundamentally dull, piece of engineering, only made interesting, somewhat, when rating agencies intervene sometimes to make life harder for dealers. The idea is to sort out all the agents and their mandatory running costs first, then “senior” creditors — typically the broker as swap counterparty, though this is where rating agencies can intervene — then getting to the Noteholders and if anything is left after that, to the Issuing SPV. | |||
Given the wide range of assets and structures that repackaging SPVs can engage in, the trick it to make it as general as possible. Legal eagles like to nest in the overhangs of a payments waterfall — they can make a frightful mess — so it pays to keep it as simple as possible. | Given the wide range of assets and structures that repackaging SPVs can engage in, the trick it to make it as general as possible. Legal eagles like to nest in the overhangs of a payments waterfall — they can make a frightful mess — so it pays to keep it as simple as possible. | ||