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ABS Desk Quiz

You're the new analyst at Golden Sun Advisors. Your MD has $10mm to put into used-car auto loans and wants at least a 10% return. Can you size the deal? 15 questions, ramping from easy to hard, on price, leverage, the waterfall, net interest margin, WAL, defaults and turbo. Grab a phone calculator; each one takes under a minute. Pass mark: 11 out of 15.

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Question 1 of 15

JC Marlin offers a $30,000 auto loan at 105px. What does Golden Sun pay for it?

A

$30,000

B

$31,500

C

$30,150

D

$28,500

Question 2 of 15

Golden Sun puts $10mm into the Resid. The base-case multiple on invested capital (MOIC) is 1.3x. How much profit is that?

A

$3mm

B

$13mm

C

$1.3mm

D

$0.3mm

Question 3 of 15

Golden Sun buys a $100 auto loan at 105px. JC Marlin's ABS Debt is 80% of the loan balance. How much does Golden Sun put in?

A

$20

B

$21

C

$25

D

$5

Question 4 of 15

Available Funds this month are $10. Due: servicing fee $3, ABS interest $5, ABS principal $80. How much reaches the Resid?

A

$2

B

$0

C

$7

D

$10

Question 5 of 15

$40mm of auto loans back $32mm of ABS Debt. What's the overcollateralization amount, as a % of the collateral balance?

A

20%

B

25%

C

125%

D

80%

Question 6 of 15

Potato math: a $100 loan at par yields 12% and pays a 3% servicing fee. JC Marlin lends $80 at 5%. Ignoring time and amortization, what's the return on Golden Sun's $20?

A

9%

B

45%

C

25%

D

20%

Question 7 of 15

Loans yield 12%, servicing is 3%, and the ABS Debt is 80% of the pool at a 5% coupon. What's the net interest margin, as a % of the auto loan balance?

A

4%

B

5%

C

7%

D

25%

Question 8 of 15

A $30,000, 12%, 72-month auto loan has a WAL of 3.4 years. Using Interest = Balance x Time x Rate, about how much interest does it pay if every payment is on time?

A

$21,600

B

$3,600

C

$10,764

D

About $12,200

Question 9 of 15

You pay 105px for a $30,000 loan. The borrower makes 2 payments, then prepays in full, for about $30,600 of total cash. What's your profit or loss?

A

−$900

B

+$600

C

$0

D

−$1,500

Question 10 of 15

Original pool: $40mm. Balance at the start of the month: $30mm. Prepays that month: $0.6mm. What's the SMM (single month mortality)?

A

1.5%

B

24%

C

2%

D

6%

Question 11 of 15

Base case: 8% cumulative defaults over the pool's life, with recoveries of about 55% of the defaulted balance. What's the cumulative net loss, as a % of the original pool?

A

8%

B

About 3.6%

C

4.4%

D

About 21.6%

Question 12 of 15

Month 4: 1.40% of the pool is charged off and 0.80% is recovered. The CNL trigger is 0.50%. What happens?

A

CNL is 1.40%. Trigger breached; Turbo.

B

CNL is 0.60%. The ABS Debt defaults and the loans get sold.

C

CNL is 0.60%. Breached, but the Resid keeps getting paid at an 80% advance rate.

D

CNL is 0.60%. Breached; Turbo, and the Resid gets nothing until it cures or the debt is repaid.

Question 13 of 15

At 100px, an 80% advance rate and a 5% coupon with perfect pay, potato math says 25%. The first term sheet has Turbo: all cash pays down the ABS Debt until it's $0. The Resid IRR is closer to:

A

About 14%. Turbo de-levers the deal and delays Resid cash until after month 50.

B

25%. Turbo only changes when JC Marlin gets repaid.

C

Above 25%. Paying down the debt faster saves interest for the Resid.

D

About 9%. Turbo removes the leverage at closing.

Question 14 of 15

Loss-adjusted, the loans now yield 5%. JC Marlin's coupon is also 5%. He raises the advance rate from 80% to 90%. What happens to the Resid return?

A

Roughly doubles. More leverage always boosts returns.

B

Rises to the 10% hurdle.

C

Barely moves, staying at about 5%. Leverage that costs what the loans earn isn't accretive.

D

Falls to about 0.5%.

Question 15 of 15

Best and final: loans at 104px, a 90% advance rate on the loan balance, and $10mm of Golden Sun equity. About how much loan balance can Golden Sun buy?

A

About $42mm

B

About $70mm

C

$100mm

D

$50mm

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