Cash Flow Waterfall

The contractual priority of payment sequence in a securitisation. Standard structure: senior expenses → senior interest → OC test → junior interest → reserve replenishment → equity distributions.

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.

Turbo Redemption

Accelerated repayment of senior notes triggered by OC or IC test failure, funded by diverting excess spread. Conditional turbo: applies only while the test is failing. Unconditional turbo: always redirects; common in European CLOs.

IC Test (Interest Coverage Test)

Formula: IC Ratio = Available Interest Income / Required Interest Payments. Failure traps cash before equity distributions. Typical CLO IC minimum ~120%.