Which claim is paid from the available cash and where does a shortfall remain? This original fictional exercise focuses on tracing a stated payment priority through available cash. The task is to build a waterfall schedule and a list of unmodeled contractual rules, not copy a confident conclusion. It is not a live recommendation, client record or employer assessment.
The inputs and the question
Structured-finance interview preparation should explain collateral cash, allocation rules, priority and the limits of the model. The fictional waterfall here is intentionally simple; actual transaction documents can include triggers, reserves and many additional rules.
| Supplied item | Fictional input |
|---|---|
| Cash available | 6 million |
| First: servicing cost | 0.5 million |
| Second: senior interest | 1 million |
| Third: senior principal | 3 million |
| Fourth: mezzanine payment | 1 million |
Use the supplied inputs together. When dates, units or definitions are not given, identify the gap rather than silently filling it with a convenient assumption. An actual assignment may require more detail than this deliberately limited case.
Work through the base case
The stated claims total 0.5 + 1 + 3 + 1 = 5.5 million. With 6 available, residual cash is 0.5 million. The order is part of the case assumption, not a universal securitization rule.
Trace the balance after each payment. A residual cannot be paid before higher-priority amounts under this stipulated order. Do not treat all classes as sharing proportionally unless that is actually the supplied rule.
The arithmetic or evidence check is only one part of the answer. Explain the definition that makes it valid and what remains outside the exercise. Do not convert a result from this case into a claim about a real company, market or client.
Change the assumption and follow the consequence
With only 3 million available, servicing takes 0.5 and senior interest takes 1, leaving 1.5 for 3 of senior principal. Senior-principal shortfall is 1.5; mezzanine and residual receive zero in this simplified priority.
Keep the unchanged inputs visible. State whether the change is an observed fact or a scenario you introduced. If the information needed to calculate a fuller result is missing, say what you would request instead of manufacturing precision.
The interpretation to avoid
Distributing cash proportionally, ignoring fees or inventing a cure trigger changes the problem rather than solves it.
A useful response names the limitation without abandoning the task. Show the part you can establish, then explain the condition or document needed for the next conclusion. Being explicit about that boundary is different from refusing to reason about the case.
Build the evidence artifact
Build a dated waterfall with beginning cash, each allowed payment, remaining cash and unpaid amounts. List omitted rules and the documents you would need to examine.
Answer these questions before presenting it:
- What is the exact payment order and calculation date?
- Are reserves, triggers or diversion rules omitted?
- How do collateral losses or prepayments enter this structure?
For your own practice, write the supplied facts, your method, the base result, the changed assumption and one unresolved question on a single page. Label professional work, public-data projects and fictional exercises accurately. Remove confidential data and do not use the example to imply a decision you did not own.
What to use next
Use the structured finance preparation guide to connect the exercise to a readiness and next-resource decision. Compare the adjacent preparation task if your gap is different. The primary-source background supplies concept or role context; the facts and worked exercise above are original and fictional.
The educational case is not a legal interpretation, credit rating or investment recommendation. Inspect scope before choosing support. A readable and reproducible explanation is the immediate objective; this case does not promise an interview, qualification, investment result or a particular search ranking.