Modeling Structured Finance Cash Flows with Microsoft Excel

66 MODELING STRUCTURED FINANCE CASH FLOWS WITH MICROSOFT EXCEL

loss performance during periods of rapid portfolio growth. When analyzing

high-growth portfolios, the current period’s losses may be compared against

the prior year’s portfolio. This ‘‘growth adjustment’’ takes into account

that losses on new originations may not happen immediately and, therefore,

occur in the next annual period.^2

Tracking the loss history of loans based on origination gives a better estimation

of the asset performance over time.

Once the monthly loss amount is determined, it is very easy to calculate the

cumulative loss percentage, which is the sum of all the monthly loss percentages, up

to the current period. Using the same origination pool as the other examples (March

2004) it is evident that the cumulative loss through March 2006 is 12.99 percent

(see Figure 4.6).

FIGURE 4.6 A cumulative loss curve

sums the periodic loss amounts.

(^2) Standard & Poor’s, Structured Finance: Equipment Leasing Criteria (New York:
McGraw-Hill, 1999), 17.