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Answer: USD 0 million
## Explanation This question involves a securitization structure with credit card receivables. The key points are: 1. **Structure Hierarchy**: The tranches are paid in order of seniority: - Senior tranche (USD 250M) - Junior tranche A (USD 200M) - Junior tranche B (USD 70M) - Subordinated tranche A (USD 50M) - Subordinated tranche B (USD 30M) - First loss piece 2. **Prepayment Amount**: USD 300 million in principal prepayments 3. **Payment Waterfall**: In securitization structures, prepayments follow a sequential payment structure where senior tranches are paid first before junior tranches receive any principal. **Calculation**: - Total prepayment: USD 300M - Senior tranche par value: USD 250M - After paying senior tranche: 300M - 250M = USD 50M remaining - Junior tranche A par value: USD 200M - The remaining USD 50M is less than the full USD 200M par value of Junior tranche A - Therefore, Junior tranche A receives **USD 0 million** because the prepayment amount after paying the senior tranche is insufficient to make any payment to Junior tranche A (USD 50M < USD 200M). The correct answer is **A. USD 0 million** because in sequential payment structures, junior tranches only receive principal payments after all more senior tranches have been fully paid.
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National united bank has recently increased the bank's liquidity through securitization of existing credit card receivables. The proposed securitization includes tranches with multiple internal credit enhancements as shown in Exhibit 1 below. The total value of the collateral for the structure is USD 600 million, no lockout period, and the subordinated tranche B bond is the first loss piece:
| Bond Class | par value |
|---|---|
| Senior tranche | USD 250 million |
| Junior tranche A | USD 200 million |
| Junior tranche B | USD 70 million |
| Subordinated tranche A | USD 50 million |
| Subordinated tranche B | USD 30 million |
| Total | USD 600 million |
At the end of the fourteenth month after the securities were issued, the underlying credit card accounts have prepaid USD 300 million in principal in addition to regularly scheduled principal and interest payments. What is the amount of the prepaid principal paid out to the holders of the junior tranche A bond class?
A
USD 0 million
B
USD 50 million
C
USD 120 million