honeycfa

Which of the following terms describe external credit enhancements for asset backed securities?

A) Corporate guarantee.

B) Bond insurance.

C) Both of these choices are external credit enhancements.

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Both of the choices are commonly used external credit enhancements.

honeycfa

Which of the following is a general problem associated with external credit enhancements? External credit enhancements:

A) are very long-term agreements and are therefore relatively expensive.

B) are subject to the credit risk of the third-party guarantor.

C) are only available on a short-term basis.

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According to the “weak link” philosophy adopted by rating agencies, the credit quality of an issue can not be higher than the credit rating of the third-party guarantor. Along these lines, if the guarantor is downgraded, the issue itself could be subject to downgrade even if the structure is performing as expected.

honeycfa

External credit enhancement least likely includes:

A) revenue fund.

B) corporate guarantee.

C) bond insurance.

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External enhancements include corporate guarantees and bond insurance. A revenue fund is not an external enhancement it is an internal enhancement.