And workout seven we're going to calculate the over collateralization of the tranches for the following CLO we're going to assume that there was a default on 10% of the CLO assets at the end of year one and that 50% was actually recovered of those assets in liquidation. So we're going to go ahead and calculate those tests. And the first thing we need to do here is calculate the total par assets and that's the sum of the total capitalization of the CLO. The next thing we'll do is we'll calculate the asset balance for What's called the diversion test and that's effectively just the net of the par assets in this case at the beginning of the CLO at the close of the CLO where there where there won't be a default or any recovery will still go ahead and build our formula to include these cells and we'll see once we have a default how they impact the calculation but effectively the asset balance is the sum of the Capitalization at the beginning of the CLO now, we need to calculate the denominator for the test and the first class of collateral we're going to calculate the is the A and B. And that's the most senior tranche and the A and B collateral actually refers to the Triple A or double A torches. So it's a little confusing because the they're using an alternate kind of letter naming system to name something that's already named with letters using the rating agency letters, but that is how it's done. So the 300 for the A and B collateral is the Triple A and double a the collateral test. Therefore is going to be the asset balance over the A and B collateral and that gets us to A 133.3% test ratio and when I put that over the trigger, which is in the in the documentation for the special purpose vehicle.

For these various tranches. Everyone has their own trigger for the for this particular.

Class it's 123. So the cushion over that trigger is 10.3% So again, that is the collateral cushion in case of default.

The next thing we'll do is we'll go down to the class C test and we'll pick up just the class C collateral which is the A-rated or single a rated.

Trash so to calculate the collateral test here. I need to take the numerator from above for the denominator. I'm going to roll up the current class with all of the previous classes. In this case. It's just the A and B.

And that gets me a collateral test of 121.2.

and if I subtract the trigger test for the class C collateral of 113 I get a cushion of 8.2% So the cushion should actually decrease as we move down in the capital structure.

The class de collateral is going to be equal to the Triple B.

Debt, and my collateral test is going to be again that 400 over.

the sum of the Class D Class C and Class A and B and again, I have a new trigger now for this level, which is 108 and if I subtract that from the collateral test ratio, I get a 6.3% cushion.

And now I have to go ahead and do my last collateral test, which is going to be the class E collateral and that is equal to 20 that's for the Double B rated trash.

and my collateral test here is going to be once again the 400 over the sum of all of the previous tranches of debt. So that's going to be the 20 in the current class.

The 20 in the previous class the 30 in the class C and the 300 and Class A and B.

And my cushion has shrunk even farther. So now I need to think about what's happened here at the end of year one. I have a a default.

So the first thing is I'm going to actually just for the purposes of calculating the original capitalization. I'm going to I'm going to link to these cells here that just helps me keep my calculations straight in this column. So the total par assets again is going to be it's the same formula. That's the par value of the assets on paper what they're worth. However, in this case, we've had a default and the default said that we had equal to 10% of the assets. So it's going to be equal point one times.

the total par value and that means that we've lost effectively or I should say 10% or 40 have become in Jeopardy because the they've defaulted and we're going to have to try to liquidate these little these loans to get to get paid back in that recovery process of recovering the collateral. We were able to actually claw back half.

So that's going to be equal to 0.5.

times the 40 and I flip the sign because the recovery means obviously we're getting that.

Capital back so the asset balance now for the diversion test is 380. So what's assumed here is that we recovered 20 and we were able to actually reinvest back into the CLO to repair the assets that were lost.

So now I have my asset balance for the diversion test, but it's smaller than it it once was so I can go ahead and calculate what that does to my to my ratios. If I'm in violation of any of these ratios, the asset manager is going to have to repair this asset balance to get it back up to a level where I'm no longer in breach of these cushion tests. So basically what I can what I can do here is again, since these are all linked they can just copy these across and see what happens the collateral test for A and B has dropped obviously to To 126.7 my trigger is still the same because the documentation hasn't changed. But now I've obviously I'm coming very CLOse now to being having a breach of that collateral cushion.

Same thing here for collateral C.

And once again just going to bring over my Class C trigger and then I'll copy over my test and it looks as though again. I've just made it barely by a couple percent and then for class D. I will bring this trigger over as well.

And I will copy over my cushion calculation and very very narrowly make that.

And we'll see if we can hang on for dear life here with class E bring our cushion over as well for this calculation and then copy across my collateral cushion here. And it looks as though I finally actually breached.

And what's going to have to happen here is there's going to have to be either a repairing of these of these assets to bring the class C test up or there's going to be a default on the CLO.