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Higher OC Test Cushions Bode Well for Performance, But Not Always

Typically, deals with high OC (BB) test cushions are expected to perform well, though this is not always the case. The median deal with an OC test cushion of 4 to 5 percentage points performed well, achieving 15 basis points (bp) of alpha. Deals with a small OC test cushion experienced more significant underperformance. Among deals with less than 1 percentage point of cushion, approximately three-quarters performed poorer than the loan index.

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