Over-Collateralisation (OC)

The excess of asset principal over the face value of issued notes; expressed as OC ratio = asset balance / note balance. Example: $110M assets backing $100M notes = 110% OC ratio = 10% OC amount.

Subordination

The structural seniority ordering of tranches: losses are absorbed by junior notes before reaching senior notes. Also expressed as 'credit enhancement level' for the senior tranche.

Excess Spread

The difference between interest received on the asset pool and interest paid on issued notes plus fees. The first line of defence absorbing losses; captured in the spread account before OC tests apply.

Reserve Account

A cash account funded at closing that provides a liquidity and credit buffer. Typically sized at 0.5–2% of initial pool balance; replenished from excess spread after other waterfall payments.