Credit Enhancement


A measure of the amount of credit protection given to ABS investors. The amount of credit enhancement depends on both the seniority or tranche of the security and the specific features written into the bond covenant. Credit enhancement is quoted in percentage or basis points and indicates the extent of losses in the underlying pool of assets that have to be achieved before there is impairment to the security holder. All things being equal, a larger credit enhancement indicates better protection to the security holder and lower credit risk.

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