Consider a three-tier securitization structure with the following assumptions:

• The loans in the collateral pool and the liabilities are assumed to have a maturity of 5 years.

• Assets consist of 100 identical loans with par value of $1 million each, priced at par, paying a fixed 8.5% (i.e., 350 bps over LIBOR flat at 5%).

• Senior debt (senior bonds) of $85 million paying a coupon of LIBOR + 50 bps.

• Mezzanine debt (junior bonds) of $10 million paying a coupon of LIBOR + 500 bps.

• The scenario assumes a default rate of 10% per annum.

• The money market rate is 5%

| Default | Survived | Loan Principal and Interest | Senior Interest | Junior Interest | Excess Spread | Overcollateral | Recovery | QC + Recovery | Equity Flow | QC a/c |

|---------|----------|-----------------------------|-----------------|-----------------|---------------|----------------|----------|---------------|-------------|--------|

| t | Annual | Cum'l | | | | | | | | |

| 1 | 10 | 10 | 90 | 0.085 | 4.875 | 1 | 1.9750 | 1.7500 | 4.0000 | 5.7500 | 0.225 | 5.7500 |

| 2 | 9 | 19 | 81 | 7.6500 | 4.875 | 1 | 1.2100 | 1.2100 | 3.8000 | 4.8100 | 0 | 10.8475|

| 3 | 8 | 27 | 73 | 8.8850 | 4.875 | 1 | 0.5300 | 0.5300 | 3.2000 | 3.7300 | 0 | 15.1199|

| 4 | 7 | 34 | 66 | 8.2050 | 4.875 | 1 | -0.0650 | -0.0650 | 2.8000 | 2.7350 | 0 | 18.6109|

| 5 | 7 | 41 | 59 | 5.6100 | 4.875 | 1 | | | 2.8000 | | | 19.5414|

Total Terminal Avail Funds: 86,3584

Owed to Bond Tranches in Year 5: 100,6750

Under this high-default scenario, which of the following statements is true?