#fixed #income
In Subordination or credit tranching, if the issuer defaults, losses are allocated from the bottom up—that is, from the most junior to the most senior tranche. The most senior tranche is typically unaffected unless losses exceed the amount of the subordinated tranches, which is why the most senior tranche is usually rated Aaa/AAA.
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3.1.4.1. Internal Credit Enhancementst claim on available cash flows. This type of protection is also commonly referred to as a waterfall structure because in the event of default, the proceeds from liquidating assets will first be used to repay the most senior creditors. Thus, <span>if the issuer defaults, losses are allocated from the bottom up—that is, from the most juniorto the most senior tranche. The most senior tranche is typically unaffected unless losses exceed the amount of the subordinated tranches, which is why the most senior tranche is usually rated Aaa/AAA.
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