Planned Amortization Class (PAC) Tranche
- Planned Amortization Class (PAC) Tranche
- A class of tranche in a planned amortization class (PAC) bond that receives a primary payment schedule. As long as the actual prepayment rate is between a designated range of prepayment speeds, the life of the PAC tranche will remain relatively stable. This tranche of the PAC bond receives some measure of protection against prepayment risk.
The measure of prepayment risk protection, which includes both contraction and extension risk, is limited by the size of the companion bond and the speed of prepayment. If the speed of repayment is too slow (below the lower PAC collar), the life of the PAC tranche is extended; if the speed of repayment is too fast (above of the upper PAC collar), the life of the PAC tranche is shortened.
Investment dictionary.
Academic.
2012.
Look at other dictionaries:
planned amortization class tranche — planned amortization class ( PAC) tranche A REMIC security created to receive selected cash flows from a pool of underlying mortgages securing the REMIC. PAC tranches use a structure similar to a sinking fund to establish a fixed principal… … Financial and business terms
targeted amortization class (TAC) tranche — Bonds created in scheduled pay CMO structures. A TAC tranche is structured to avoid prepayment volatility. Each TAC has a designated target speed. When prepayments exceed the targeted speed, the excess cash flow is diverted to other tranches in… … Financial and business terms
PAC tranche — planned amortization class ( PAC) tranche A REMIC security created to receive selected cash flows from a pool of underlying mortgages securing the REMIC. PAC tranches use a structure similar to a sinking fund to establish a fixed principal… … Financial and business terms
targeted amortization class tranche — targeted amortization class (TAC) tranche Bonds created in scheduled pay CMO structures. A TAC tranche is structured to avoid prepayment volatility. Each TAC has a designated target speed. When prepayments exceed the targeted speed, the excess… … Financial and business terms
TAC tranche — targeted amortization class (TAC) tranche Bonds created in scheduled pay CMO structures. A TAC tranche is structured to avoid prepayment volatility. Each TAC has a designated target speed. When prepayments exceed the targeted speed, the excess… … Financial and business terms
PAC Bond — Stands for Planned Amortization Class bond. A tranche class offered by some CMOs that has a sinking fund schedule and an ability to make principal payments that are not subordinated to other classes. Bloomberg Financial Dictionary … Financial and business terms
Companion Tranche — A class of tranche found in planned amortization class (PAC) and targeted amortization class (TAC) collateralized mortgage obligations (CMOs) that absorbs variable prepayment rates. The companion trache is so named because it is designed to… … Investment dictionary
stressed PAC — A planned amortization class ( PAC) CMO tranche in a CMO experiencing rapid prepayments of underlying collateral. The PAC tranche is still performing within expected ranges, ( i.e., it is not a busted PAC); however, the support tranches are under … Financial and business terms
busted PAC — Planned amortization class tranches in collateralized mortgage obligations for which the companion or support tranche has been completely retired by larger than expected prepayments from the underlying mortgage loans. Because the companion or… … Financial and business terms
controlled amortization bonds — See planned amortization class tranche; ( PAC tranche) … Financial and business terms
