Senior and junior tranches
Splitting one pool of assets into issues of different seniority: losses eat the junior tranche first, payments reach the senior tranche first.
How to read the number
One set of assets produces securities of different risk — not because the assets differ, but because the queue for payment does.
When the metric lies
A senior tranche looks protected right up to the moment the junior one is fully burned through. After that it loses like any other bond, and ratings lag that transition.
Also known as: tranche, mezzanine tranche