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https://en.wikipedia.org/wiki/Credit_enhancement
Credit enhancement is the improvement of the credit profile of a structured financial transaction or the methods used to improve the credit profiles of such products or transactions. It is a key part of the securitization transaction in structured finance, and is important for …
https://en.wikipedia.org/wiki/Tranche
This is accomplished through the use of credit support specified within the transaction structure to create securities with different risk-return profiles. The equity/first-loss tranche absorbs initial losses, followed by the mezzanine tranches which absorb some additional losses, again followed by more senior tranches.
https://www.investopedia.com/terms/c/companion-tranche.asp
A companion tranche is designed to provide support to the planned amortization class (PAC) tranche by absorbing variable prepayment rates.
https://www.investopedia.com/terms/t/tranches.asp
Senior tranches typically contain assets with higher credit ratings than junior tranches. The senior tranches have first lien on the assets—they're in line to be repaid first, in case of default.
https://www.coursehero.com/file/p6bvq8b/Tranche-Rating-of-Pool-Par-Description-Credit-Support-Tranche-LTV-Ratio-Yield/
• The credit-rating a CMBS tranche receives is a function of the nature and risk of the underlying mortgage pool as well as of the amount of credit support in the tranche. • e.g., a mortgage pool consisting of loans that have relatively low and homogeneous LTV ratios will not need as much credit support for a given credit-rating.
https://www.calculatedriskblog.com/2007/05/mbs-for-ubernerds-iii-credit-risk.html
May 05, 2007 · The credit enhancement percent on each tranche is the amount of lower-ranked principal that would have to be lost before the tranche in question took a loss; it’s the total of the lower-ranked tranches plus the OC divided by the pool balance.
https://ocw.mit.edu/courses/urban-studies-and-planning/11-432j-real-estate-capital-markets-spring-2007/lecture-notes/ch20.pdf
A Tranche is “senior”, “investment grade” securities: • Gets retired 1stst (all five 1--yr loans liquidating pmts would go to A). • 25% credit support ÍÎ25% of pool par value will be assigned credit losses (par value lost in default) before A tranche receives any credit losses (any reduction in par due to default).
https://study.com/academy/answer/a-certain-mortgage-pool-has-900-million-in-par-value-the-senior-a-tranche-has-25-credit-support-and-the-next-level-b-has-15-credit-support-how-much-par-value-of-securities-was-issued-in-the.html
Question: A certain mortgage pool has $900 million in par value. The senior (A) tranche has 25% credit support, and the next level (B) has 15% credit support.
http://csinvesting.org/wp-content/uploads/2015/12/BURRY_Scion_2006_4Q_RMBS_CDS_Primer_and_FAQ.pdf
In fact, the apparent credit support under each rated tranche will grow during the first year or two. If the thesis plays out as originally contemplated, the reduction in credit support and ultimately the payouts on credit default swaps would come shortly after the mortgage pools face their peak stress, or roughly 2-2.5 years after deal issuance.
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