Priority and inferiority in ABS are divided by the order in which equity is allocated.

Priority and inferiority are different orders of allocating rights and interests. Their risks are different and their returns are also different.

For example, the priority risk is low and the yield is also low.

Subordinated tiers have higher risks and may have higher yields.

If a product suffers a loss, then the lower-tier funds will be lost first. Only when all the lower-tier funds are lost, then the priority funds will be damaged.

If a product makes a profit, and the profit is large, then when the lower rate of return agreed upon in the original agreement is allocated to the priority class, all the remaining profits will belong to the subordinate class.

Credit enhancement is mainly divided into two parts: internal credit enhancement and external credit enhancement.

Internal credit enhancement is carried out from the perspective of the structural design of the underlying asset pool of asset-backed securities and the design of the credit enhancement mechanism of the product, which mainly includes priority and subordinate structural arrangements, spread payment system, over-collateralization settings, margin and cash reserve accounts, etc.

; External credit enhancement is mainly based on credit guarantees provided by external or financial institutions, including guarantees, balance payment commitments, repurchase commitments, liquidity support, etc.

The vast majority of investors with priority in credit asset securitization are banks. Although the investment proportion of public funds has increased, the proportion of funds is still far lower than bank funds.

The senior interest rate of credit asset-backed securities is generally relatively low. For some institutional investors or private equity fund products with relatively high risk appetite, the subordinated securities of credit assets are more attractive than the senior securities.

1. If the issuance interest rate of the priority is lower, the cost of cash flow expenditure will be lower, and more default losses of the entire asset can be absorbed, and the income of the subordinated securities will be greater.

Although the risk of secondary investment in credit asset-backed securities is relatively high, it is also more likely to obtain relatively high returns. This article only briefly lists the key points of concern. The editor will analyze each indicator and secondary returns in detail in subsequent articles.

composition and influencing factors.

2. Subordinated returns are distributed inferior to priority, and the priority rating determines the risk of the subordinated to a certain extent; on the other hand, paying attention to the overall credit rating of the underlying assets is not only to pay attention to the priority credit rating, but also to the entire credit rating.

Pay attention to the credit status of the assets in the pool.

For example: credit asset quality (which level in the 5-level classification), borrower credit rating distribution, borrower's weighted average credit rating, pooled loan credit rating, etc.