Junior & Senior Tranches
Tranches are the AmFi system to balance risk and return.
In AmFi Pools, the senior tranche has the least risk, with lower returns, because it is protected by the Junior Tranche in case of default.
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The Junior Tranche is exposed to most of the risk and is referred to as first-loss capital. Any default will be covered first by the Junior Tranche and any loan repayment interest flows to the Senior Tranche first. Only when the expected APY is reached does the remainder of the returns flow to the Junior Tranche.
It is important to note that the Junior Tranche does not have a capped APY like the Senior Tranche. If the Agent does a good job, the profits can be high, but if there is a default, the Junior Tranche investors lose (part of) their invested capital and interest gained, as it goes to the Senior Tranche.
- After the creation of each AmFi Pool and before it is opened for investment, the Agent must provide an amount of first-loss capital.
- The amount varies from 5% to 25% of the total pool size, depending on the Agent's track record in operating credit vehicles, and must be allocated to the Junior Tranche.
- Investment in the Junior Tranche is not available to investors in general, only Agents and Investors invited by them can allocate capital to this tranche.
- In this way, the Agent's interests are aligned with those of the Investors, as the Agent's own money serves as a buffer that protects the Investor from capital losses.
Investors participate in the Senior Tranche to receive returns from the Agent's loan transactions with ease. These returns have a capped APY. You can read the details below.
- Once the Junior Tranche capital is reached, this AmFi Pool is moved to "Open Listing" status.
- After the minimum operating capital is raised, the pool will open for operations.
The expected APY depends on two factors:
- 1.Each operation has its own risk-return profile. A riskier operation will have a higher APY, while a less risky operation will have a lower APY.
- 2.The APY is determined by an analysis of the transactions made in the pool. Currently, institutional investors, with their extensive experience in the capital markets, handle the initial pricing of the pools. They analyze the operational structure of each pool and the guarantees with which it will operate to determine the desired yield and the minimum subordination ("tranche ratio") required.
Although essential and basic information is provided about each pool (such as Senior Tranche yield, repayment period, asset type), AmFi does not provide any type of investment advice.
Each time an investor supplies the senior or junior tranche with ABRL, they receive a tranche token, which is like a “digital receipt” representing how much they supplied to the pool.
Investments in AmFi Pools are made based on the tranche tokens:
- When an investor allocates funds to a pool, they “buy” the pool’s tranche tokens.
- If the pool performs well, the value of the tokens increases.
- Senior tokens accrue yield every 24 hours.
- Junior tokens increase in value as loans are repaid and the pool value increases.
- When the investor wants to withdraw funds, the pool “buys back” the appreciated tranche tokens.
It is important to note that although Investors can request a withdrawal at any time, they must wait for the Time to Liquidity (varies by pool), which is a pre-determined period of time in which the withdrawal request is actually executed.
Investors may withdraw funds from the Senior Tranche as long as there is enough ABRL remaining in the tranche. If the Senior Tranche is 100% allocated and there is no ABRL left, it is required to wait for other Investors to supply first or for Borrowers to make repayments.
The same rules apply to Junior Tokens, except that they request withdrawals if doing so would violate the minimum tranche ratio for that pool.
Last modified 2mo ago