What Is Excess Interest?
Excess spread: The difference between the interest of the underlying financial assets and the interest of the securities.
Excess spread
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- Chinese name
- Excess spread
- Meaning
- The difference between interest and security interest
- Positioning
- It is the primary line of defense against losses
- Function
- Make up for default losses on cash flow of underlying assets
- Excess spread: The difference between the interest of the underlying financial assets and the interest of the securities.
- It refers to the excess income after the total cash income generated by the underlying assets minus the interest payable for securitization, the necessary service fees, and the bad debt losses caused by default. It is the primary line of defense against losses. When the excess spread is negative, it indicates that the cash flow is obviously insufficient. At this time, other forms of credit enhancement measures need to be used.
- Therefore, the excess spread is the most important indicator for assessing the credit status of the asset pool. When the securitization product expires, the remaining excess spread is generally obtained by the initiator, and the initiator also plays the role of an asset management service agency. In order to obtain as much excess spread as possible, the promoters have the motivation to perform the service function of good account recovery.
- In addition to the excess spreads that can compensate for the default losses suffered by the cash flows of the underlying assets, sometimes special sub-accounts are set up to reserve a certain amount to prevent the operational risks of the originating agency and asset management service agencies, such as service transfers, mixing, offsetting and Liquidity risk.