Redemption Flow

The actual difference in risk profile between different tranches comes from the behavior of the bond at maturity. When the bond matures, it returns the collateral to the tranche holders, in a waterfall fashion. The most senior tranches (i.e. the A-Tranche) get paid back in full 1:1 first, then the most junior tranche (the Z-Tranche) gets paid back last, but receives all of the leftover funds.

Slight Decrease in Value

• A-Tranches get paid back 1 AMPL per A-Tranche, in full.

• B-Tranches get paid back 1 AMPL per B-Tranche, in full.

• Z-Tranches get paid the rest, ~0.5 AMPL per Z-Tranche

Any A- or B-Tranche holders are entirely whole after this process, even though the value of AMPL dropped over the lifetime of the bond. Z-Tranche holders suffer all of the value lost.

Increase in Value

• A-Tranches get paid back 1 AMPL per A-Tranche, in full.

• B-Tranches get paid back 1 AMPL per B-Tranche, in full.

• Z-Tranches get paid the rest, ~1.2 AMPL per Z-Tranche

Any A- or B-Tranche holders are entirely whole after this process, but they do not get any of the benefit of the increase in AMPL value.

Z-Tranche holders receive all of the upside in return for their extra risk.