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Loss-Triggered Leveraged Super Senior Tranche


A leveraged super senior tranche (a synthetic collateralized tranche) that is associated with a loss trigger. More specifically, it involves a synthetic structure where a counterparty puts up a specific amount of collateral to underwrite protection on a tranche (with some attachment point and detachment point of the total notional of reference entities/ obligations). A default of any of the reference entities/ obligations may lead to losses in the tranche, and thus erosion of the collateral (placed by the counterparty).

Erosion will take place when the total loss in the underlying pool (portfolio) surpasses the attachment point of the underwritten tranche after accounting for recovery on the reference entities/ obligations in default. In equity tranches, attachment point is zero, where typically part of the fee is paid upfront as a lump sum. For amortizing contracts, the payments are scaled down as losses consume the notional in the portfolio.



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