CFA EOC: Fixed income: Reading # 52: Chapter: Asset backed sector of the bond market: Q: 42 and 43

[mikeworld1976]

Page 456 in the CFA notes:
Can’t understand:
Q-42: Why external credit enhancements can’t be used?
Q-43: Why Whisper Spa’s credit rating would not be relevant?

 

[SerenityNow]

Q42 is answered almost word for word on p 416 section I 3rd paragraph. Q43 it’s because whisper is not guaranteeing repayment (nor is anybody else). They are not agreeing to repay if the customers don’t pay the debt, so their rating is irrelevant. Only thing that matters is internal CE in this example.