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
2	9	19	81	7.6500	4.875	1	1.2100	1.2100	3.8000	4.8100
3	8	27	73	8.8850	4.875	1	0.5300	0.5300	3.2000	3.7300
4	7	34	66	8.2050	4.875	1	-0.0650	-0.0650	2.8000	2.7350
5	7	41	59	5.6100	4.875	1			2.8000

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?