Credit · Core
Asset-Backed Security
An ABS is a bond paid from a pool of receivables — cards, auto, equipment — sliced into tranches with a waterfall.
Definition
A trust holds the assets; notes are issued in seniority. Credit enhancement (subordination, excess spread, reserve) protects seniors. Prepay and default are the two clocks. It is not a corporate promise; it is a pool.
Why it matters
Consumer credit reaches the bond market here. Underwriting of the pool — not the sponsor logo — is the risk.
Case
2007–08 ABS and CDOs: the pool assumptions (correlation, FICO stability) were the product. Seniors were not senior enough.
How to read it
Collateral, enhancement, and the servicer. Then prepay/default vectors. The rating is a starting rumor.
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