Financial Risk Manager Part 2

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A bank is planning to securitize car loans using an SPV. The bank would sell the loans to an SPV through a "true sale" and the SPV would issue securities under a "revolving securitization structure." As part of its planning, the bank is reviewing characteristics of securitization transactions in general as well as specific features that are commonly incorporated into revolving structures. Which of the following statements is correct?

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The credit quality of the securitized car loan assets would be enhanced if the principal value of securities issued is higher than the principal value of the assets.

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The SPV can provide the bank with a funding advantage if the credit quality of the securitized car loan assets is higher than the credit quality of the bank's balance sheet.

Under a revolving structure, prepayment assumptions are not incorporated, which typically results in principal amounts paid to investors on a coupon-by-coupon basis throughout the life of the security.

Under a revolving structure, the bank transfers the car loan assets to the SPV and the SPV can issue multiple securitizations, which are priced and traded based on weighted-average life of the structure as well as on investor demand.