Sequential pay is a type of securitisation structure in which the tranches are paid off in order of seniority.
- This means that the most senior tranche is paid off first, followed by the next most senior tranche, and so on.
- The tranches with the lowest risk are typically issued at a higher price, while the tranches with the highest risk are typically issued at a lower price.
Here are some applications of sequential pay in securitisation:
- To reduce risk: Sequential pay can be used to reduce risk for investors. This is because the most senior tranches are paid off first, which means that investors in these tranches are less likely to lose money if there is a default.
- To attract investors: Sequential pay can be used to attract investors. This is because investors who are looking for a low-risk investment may be attracted to the most senior tranches of a sequential pay securitisation.
- To increase liquidity: Sequential pay can be used to increase liquidity for investors. This is because the tranches of a sequential pay securitisation are paid off in order of seniority, which means that investors can sell their tranches as they are paid off.