A UK-based SPV has issued asset-backed securities with the following structure.

Bond Class Par value (in million)

A (Senior) 250

B (Subordinated) 50

C (Subordinated) 50

D (Subordinated) 10

Total 360 (Total Liabilities = Total Assets)

Please consider the below queries and fully show your calculations and reasoning

Calculate the Credit Enhancement (CE) available to class A and discuss what type of CE this represents and its function.

How would your answer in a. change if there is also a Reserve Fund in place available for all tranches? The Reserve is fully funded, has not been depleted and represents 3.0% of the outstanding class A.