Undercollateralization Clause Samples
The Undercollateralization clause defines the situation where the value of collateral provided by a party falls below the required threshold set in an agreement. In practice, this clause typically triggers specific actions, such as requiring the undercollateralized party to post additional collateral or allowing the secured party to take protective measures. Its core function is to manage and mitigate credit risk by ensuring that sufficient collateral is always maintained to cover potential exposures, thereby protecting the interests of the secured party.
Undercollateralization. Because losses on a mortgage loan may be allocated in part to the subordinated component classes of a different group, the scheduled principal balance of a pool’s target-rate strip could differ from the aggregate principal balance of the related group’s target-rate classes. If the scheduled principal balance of a pool’s target-rate strip is less than the aggregate principal balance of the related group’s target-rate classes, the group will be undercollateralized by the amount of the difference; conversely, if the scheduled principal balance of a pool’s target-rate strip is more than the aggregate principal balance of the related group’s target-rate classes, the group will be overcollateralized by the amount of the difference. If a group is undercollateralized, the normal distribution rules will be adjusted as follows:
(1) To the extent that scheduled interest payments on the target-rate strip of a pool related to an overcollateralized group exceed the aggregate interest allocations to that groups’ target-rate classes, plus any insurance premium due to an Insurer, that excess, up to the amount of any interest allocation carryforwards that the undercollateralized group would otherwise experience on that distribution day and the insurance premium, will be deducted from the pool distribution amount for the overcollateralized group and added to the pool distribution amounts for the undercollateralized group. If there is more than one such undercollateralized group, or more than one overcollateralized group, then (a) amounts will be deducted from the pool distribution amounts for the groups that are overcollateralized in proportion to such excess interest payments, up to the aggregate amount of such interest allocation carryforwards and the insurance premium for the undercollateralized groups, and (b) amounts will be added to the pool distribution amounts of the undercollateralized groups in proportion to the amount of such interest allocation carryforwards and insurance premium.
(2) Before the subordination depletion date, if one or more groups is undercollateralized and the principal balance of each of the groups’ subordinated component classes has been reduced to zero, then (a) all amounts that (after required reimbursements to any ratio-stripped PO classes) would otherwise be distributed as principal to the subordinated component classes of the other groups, up to the aggregate amount by which such undercollateralized groups are undercollateralized, will, in...
Undercollateralization. If at any time PRF believes that the then current fair market value of the Collateral is less than the then applicable Put/Call Price (an “Undercollateralization”), then PRF, at its sole cost, may deliver to the Company a written statement setting forth its valuation of the Collateral and its determination of the then current Put/Call Price (the “PRF Valuation”). At the time of delivery to the Company of such statement, PRF shall deliver to the Company supporting documentation of such Valuation that sets forth the valuation methodology and all material assumptions underlying the PRF Valuation. Upon receipt of the PRF Valuation and supporting documentation, the Company shall have thirty (30) days to review the PRF Valuation and either accept the PRF Valuation or deliver to PRF a written statement setting forth its valuation of the Collateral and its determination of the then current Put/Call Price (the “Company Valuation” and together with the PRF Valuation, the “Valuations” and each a “Valuation”). At the time of delivery to PRF of such statement, the Company shall deliver to PRF supporting documentation of such Valuation that sets forth the valuation methodology and all material assumptions underlying the Company Valuation. Upon receipt of the Company Valuation and supporting documentation, PRF and the Company shall negotiate to attempt to agree upon a valuation of the Collateral and the then current Put/Call Price. If after thirty (30) days following delivery of the Company Valuation, PRF and the Company shall not have agreed upon