A measure of how much of losses a tranche can absorb as part of the overall securitized structure. It is typically calculated as the ratio of the original class size, relating to a respective tranche, to the original collateral balance of the overall transaction. A thick tranche is one with a big width. In other words, the the difference between its exhaustion percentage (detachment point) and its attachment percentage (attachment point) is said to be thick according to specific norms (e.g., 10%, 20%, or even higher).
A tranche width represents the percentage of capital structure of a securitized structure (e.g., a CDO) that a given tranche accounts for. More specifically, it covers a larger portion of the collateral pool and, as such, is less sensitive to losses that exceed initial impairment. Tranche width is used at the time a CDO trust determines and assigns the number of tranches in the structure, and for the purpose of managing the expected credit ratings for each tranche in the structure. A thick tranche spans a wide region of the loss distribution. A thick tranche is perceived to be less risky than standard tranches since in the case of default, a thick tranche can absorb more losses before it is wiped out.
On the other hand a thin tranche has a small width. In other words, the the difference between its exhaustion percentage (detachment point) and its attachment percentage (attachment point) is said to be thin according to specific norms (e.g., 1%, 2%). More specifically, it is backed by a smaller portion (percentage) of the collateral pool so even small losses to the collateral will be allocated to a larger portion (percentage) of the subordinated principal balance.
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