What is a support (companion) tranche in a CMO structure?
QUESTION
What is a special purpose vehicle (SPV) used for in ABS or MBS issuance?
QUESTION
What is the primary structural purpose of tranching in ABS and MBS deals?
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ANSWER
To allocate cash flows and credit risk into classes with different priority. Tranching creates tiers of securities with varying risk-return profiles to appeal to different investor preferences.