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Turbo Triggered Liability Amortization


A structural feature involves imposition of a priori requirements structured liability amortization through a timetable of time steps and corresponding liability balances. Failure to meet these balances would immediately invocate a trigger, giving protection to senior bondholders (noteholders) against a deterioration of credit support. It applies a host of tests so that cashflows will be directed to senior bondholders if one test or more fails (trigger breach). This mechanism that traps cash inside the deal and starts amortizing the bonds/notes at the fastest pace possible. In other words, a trigger breach may prompt issuers/ originators to direct capital to repay bondholders rather than re-invest it into origination of new debt.

Turbo triggers are typically used in deals involving issuance of subordinated bonds/notes (specifically triple-B and double-B). Examples of such tests include minimum excess spread, delinquency rates, violations of reps and warranties, cumulative loss levels, etc.)



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