In a typical securitization structure, excess spread is first used to fund the OC account until it reaches its predetermined cap. Once the cap is reached, any excess spread is no longer needed for credit enhancement and is redirected to equity holders as residual cash flow. This ensures that the OC account provides stable credit protection without unnecessarily withholding excess cash.

Choice B is incorrect. Retaining excess spread in the OC account beyond its cap would unnecessarily tie up funds, reducing efficiency and limiting returns to equity holders. This is not standard practice.

Choice C is incorrect. Distributing excess spread proportionally among all tranches is not consistent with typical securitization structures, where excess spread is allocated to specific purposes (e.g., funding the OC account or paying equity holders).

Choice D is incorrect. Using excess spread to pay down senior bondholders' principal prematurely would disrupt the cash flow waterfall and is not a standard use of excess spread once the OC account is fully funded.