Mortgage payment holidays could pit mezz against equity in RMBS

By Owen Sanderson
14 Apr 2020

Mortgage payment holidays, as mandated by several European governments, will hurt some European securitizations, as investors get paid out of the interest and principal payments they expect to receive from the underlying borrowers. But someone has to take the pain of the missing cash, and this could pit bond investors against deal originators.

Many securitizations have robust protection for senior notes against missed payments — reserve funds or liquidity facilities, credit enhancement, as well as a suite of triggers and cashflow traps to make sure that, when deal performance goes downhill, there’s a clear priority of payments.

But these triggers aren’t ...

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