Questions:
What is the loan-to-value (LTV) ratio for Class A of the following structured finance securities? Assume a loan amount of $407 million and an as-is appraised value of the underlying securities of $550,750,000. Also, keep in mind that the total required credit risk retention percentage (RR interest) for this transaction is 5.00%.

CLASS        PRELIMINARY AMOUNT ($)
A        183,160,000
B        59,185,000
C        43,890,000
D        58,178,000
E        42,237,000
RR interest        20,350,000

If the RR interest balance of $20,350,000 is instead allocated to Class E, how does this affect the loan-to-value (LTV) ratio for Class A?

Reference answers:
1.) The total loan amount is $407 million.
2.) The as-is appraised value of the underlying collateral is $550,744,248.99.
3.) The required RR interest (credit risk retention) is 5.00% of the total loan amount, or 20,350,000. 

The RR interest represents the portion of the loan that the sponsor retains in order to share the risk. This amount is subtracted from the appraised value since it's not part of the bondholder allocation.

$550,744,248 - $20,350,000 =  $530,394,248.99        

Next, divide the Class A balance by $530,394,248.99: 
$183,160,000 / $530,394,248.99 = 0.3453

The LTV of Class A is approximately 34.53%, or 35% when rounded to the nearest percent.

In this scenario, the new balance of Class E is the original Class E balance of  $42,237,000 plus the previous RR balance of $20,350,000, or $62,587,000.

Since the RR class is no longer a factor, the Appraisal value is $550,750,000. Therefore, the Class A LTV is simply the Class A balance divided by the Appraisal value, or 183,160,000 / $550,750,000 = ~33.24%, or 33% if rounded to the nearest percent. 
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