Credit Enhancement

Structural mechanisms that improve the credit quality of notes issued by an SPV, protecting noteholders from losses. Can be internal (OC, excess spread, subordination, reserve accounts) or external (letters of credit, guarantees, insurance wraps).

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.

Sequential Pay

A principal waterfall in which all available principal is applied to the most senior outstanding tranche until fully repaid before any proceeds flow to junior tranches. Standard during amortisation and post-trigger periods.