Explanation:
Statement B is correct because separating high-quality assets from the overall balance sheet of the bank and placing them in a bankruptcy-remote Special Purpose Vehicle (SPV) through a "true sale" allows the issuance of highly rated securities. This yields a funding advantage since these securitized bonds will carry lower interest rates than general obligations of the bank.
Statement A is incorrect because overcollateralization requires the principal value of the underlying assets to be greater (not lower) than the principal value of the securities issued to provide credit enhancement. Statement C is incorrect because revolving structures reinvest principal collections into new assets during the revolving period rather than paying down the investor principal. Statement D defines a master trust structure rather than a simple revolving securitization.
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A
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.
B
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.
C
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.
D
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.