A tranche-type bond that constitutes one of the two general parts (tranches) of a PAC-structured CMO (collateralized mortgage obligation), with the other tranche being the PAC-bond (planned amortization class bond). The support bond is set to receive the remaining principal balance (any excess monthly principal repayment), which subjects it to prepayment risk (in case the principal balance is repaid prematurely).
A support bond, in turn, can be divided into multiple tranches including sequential-pay support bond class, floating rate support bond class/ inverse floating rate support bond class, and accrual bond class.
It is also known as a companion bond or a support class.
