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This guide walks through creating a complete deal structure in DealStudio, from defining tranches to configuring the priority of payments waterfall.

Overview

A securitization waterfall defines how cash flows from the collateral pool to various stakeholders. In DealStudio, you'll configure:

1. Collateral Deal - Either replines or a loan tape from Tape Cracker
2. Tranches - Bond classes that receive interest and principal
3. Fees - Servicing, trustee, and other periodic costs
4. Accounts - Collection and reserve accounts
5. Payment Rules - The waterfall logic governing distributions

What You'll Build

A simple 3-tranche sequential pay structure with:

• Senior (A), Mezzanine (B), and Subordinate (C) tranches
• Servicing and trustee fees
• Interest and principal collection accounts
• Sequential payment waterfall

Step 1: Define Collateral and Create a New Deal

1. From the DealStudio dashboard, click New Deal to remove current configuration
2. Enter deal details:
   

   Field	Example Value
   Deal Name	EXAMPLE 2026-1
   First Collection Begin Date	2026-02-01
   First Payment Date	2026-03-25

3. Choose either Replines or Tape to define the collateral.
   For quick modeling, create representative lines:
   

   Repline	Balance	WAC	WAM	Count
   Prime	$60,000,000	7.5%	60	5,000
   Near-Prime	$30,000,000	9.0%	48	3,000
   Sub-Prime	$10,000,000	12.0%	36	1,500

   Use Tape Cracker for loan-level precision:
   1. Click Upload via Tape Cracker
   2. Select your loan file
   3. Map columns to standard fields
   4. Validate and save, copy the URL from Tape Cracker into DealStudio

Step 2: Define Your Tranches

Navigate to Structure > Tranches and create each bond adding details for: name, type, balance, day count, accrual period, coupon, maturity date, coupon cap, and carryover capped interest

Tranche A (Senior)

Click Add Tranche and configure:

Tranche B (Mezzanine)

Tranche C (Subordinate)

Tranche Summary

Step 3: Define Fees

Navigate to Structure > Fees and add periodic costs.

Servicing Fee

Trustee Fee

Fee Summary

Step 4: Configure Accounts

Navigate to Structure > Accounts to set up cash repositories.

Interest Collection Account

Principal Collection Account

Reserve Account (Optional)

Step 5: Build the Priority of Payments

This is the heart of your waterfall. Navigate to Structure > Priority of Payments.

Understanding Payment Rules

Each rule has:

• From: Source account
• To: Destination (tranche interest, tranche principal, fee, account)
• Style: Sequential or Pro Rata
• Up To Amount: Optional cap (formula or fixed)
• Condition: Optional trigger

Sequential Pay Waterfall

For a standard sequential structure, payments flow in order: Fees → Senior Interest → Senior Principal → Mezz Interest → Mezz Principal → Sub Interest → Sub Principal.

Payment Rules

Add rules in this order:

Adding Each Rule

For Rule #1 (Trustee Fee):

1. Click Add Payment Rule
2. Set From: Interest_Collection
3. Set To: fee[Trustee]
4. Set Style: Sequential
5. Leave Up To Amount blank (pay full amount)
6. Leave Condition blank (always applies)

Repeat for each rule in the waterfall.

Step 6: Pro Rata Alternative

For tranches that pay proportionally instead of sequentially:

Pro Rata Interest Example

This splits available interest between A and B based on their current balances.

Mixed Sequential/Pro Rata

Many deals have senior tranches paying pro rata, then sequential for subordinates:

1. Fees (Sequential)
2. Senior Interest - A1, A2 (Pro Rata)
3. Senior Principal - A1, A2 (Pro Rata)
4. Mezz Interest (Sequential)
5. Mezz Principal (Sequential)
6. Sub Interest (Sequential)
7. Sub Principal (Sequential)

Step 7: Add Conditions (Optional)

Conditions control when rules apply. Common examples:

Clean-Up Call

Add a condition that triggers deal redemption at 10% factor:

Condition Name: CleanupCall

Expression:

collateral[ALL].endingBalance <= 0.10 * collateral[ALL].originalBalance

Then reference in payment rules:

• Normal principal rules: Condition = NOT CleanupCall
• Redemption rule: Condition = CleanupCall

Step-Down Trigger

Subordination can release after performance tests pass:

Condition Name: StepDown

Expression:

@CumulativeLoss / collateral[ALL].originalBalance < 0.02

Step 8: Test Your Structure

Validate Configuration

DealStudio will flag errors:

• Missing tranche references in payment rules
• Circular payment logic
• Invalid formulas

Fix any red-highlighted items before proceeding.

Run a Cashflow

1. Go to Cashflows tab
2. Create a scenario:
   • Prepay: 15% CPR
   • Default: 3% CDR
   • Severity: 40%
3. Click Run Cashflow

Verify Results

Check that:

• Fees are paid first each period
• Interest flows to tranches in correct order
• Principal pays sequentially (A → B → C)
• Total distributions equal total collections
• Tranches amortize to zero

Complete Example: JSON Export

Here's what a complete sequential structure looks like when exported:

{
  "dealName": "EXAMPLE 2026-1",
  "settleDate": "2026-02-15",
  "tranches": [
    {"name": "A", "balance": 85000000, "coupon": 0.05},
    {"name": "B", "balance": 10000000, "coupon": 0.065},
    {"name": "C", "balance": 5000000, "coupon": 0.085}
  ],
  "fees": [
    {"name": "Trustee", "basisType": "FIXED", "amount": 5000},
    {"name": "Servicing", "basisType": "ON_STARTING_BALANCE", "amount": 0.005}
  ],
  "paymentRules": [
    {"from": "Interest_Collection", "to": "fee[Trustee]", "style": "SEQUENTIAL"},
    {"from": "Interest_Collection", "to": "fee[Servicing]", "style": "SEQUENTIAL"},
    {"from": "Interest_Collection", "to": "tranche[A].interest", "style": "SEQUENTIAL"},
    {"from": "Interest_Collection", "to": "tranche[B].interest", "style": "SEQUENTIAL"},
    {"from": "Interest_Collection", "to": "tranche[C].interest", "style": "SEQUENTIAL"},
    {"from": "Principal_Collection", "to": "tranche[A].principal", "style": "SEQUENTIAL"},
    {"from": "Principal_Collection", "to": "tranche[B].principal", "style": "SEQUENTIAL"},
    {"from": "Principal_Collection", "to": "tranche[C].principal", "style": "SEQUENTIAL"}
  ]
}

Waterfall Patterns Reference

Sequential Pay

Senior Int → Senior Prin → Mezz Int → Mezz Prin → Sub Int → Sub Prin

Use for: Traditional senior/sub structures

Pro Rata Pay

All Interest (Pro Rata) → All Principal (Pro Rata)

Use for: Pari passu tranches

Turbo Structure

Senior Int → Mezz Int → Sub Int → ALL Principal to Senior until paid

Use for: Accelerated senior paydown

Shifting Interest

Senior Int → Sub Int → Senior Prin (locked %) → Sub Prin (locked %)

Use for: RMBS with subordination floors

Troubleshooting

"Tranche not found" Error

• Check spelling and case of tranche name
• Ensure tranche is defined before payment rules reference it

Interest Shortfall

• Verify fee amounts aren't consuming all interest
• Check that coupon rates and accrual periods are correct

Principal Not Flowing

• Ensure principal collection account receives collateral payments
• Check that no conditions are blocking principal rules

Circular Reference

• Payment rules cannot create loops
• Ensure "From" and "To" don't reference each other

Last Updated: January 2026
Questions? Contact support@dv01.co