Let's take the below deal terms as an example of how back-leverage works:
Hypothetical Transaction:
- Facility Size - $5,000,000
- Borrower Coupon - 12%
- Senior Net Coupon = % Gross Coupon - 20% Junior Relocation - 10% Pool Reserve
- Junior Net Coupon = % Gross Coupon + 20% Junior Relocation - 10% Pool Reserve
- Leverage Ratio - 4x
- Backer Investment: $1,000,000
- Senior Pool Investment: $4,000,000
Senior Pool Economics: 8.4%
Backer Economics: 20.4%
The table below shows the economics for both the Backers and the Senior Pool for a Borrower Pool with details above. You can download this sheet here.
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