Final answer:
The subordination level of the AA tranche in a CMBS issuance is calculated by dividing the principal of the tranches junior to it by the total issuance. The Single A tranche is the most junior and has no subordination level. The AA tranche's subordination level is found by dividing the Single A tranche's amount by the total issuance.
Step-by-step explanation:
The question pertains to the calculation of subordination levels for the different tranches in a Commercial Mortgage-Backed Securities (CMBS) issuance. To find the subordination level of a given tranche, one must determine what percentage of the total issuance is junior to that tranche, which provides credit enhancement to the tranche in question.
(a) For the AA tranche, the subordination level is calculated by taking the sum of all tranches that are subordinate to AA, which in this case is only the Single A tranche, and dividing it by the total issuance. Thus, the subordination level for the AA tranche would be $114,500,000 / $2,500,000,000, which gives a percentage when multiplied by 100.
(b) For the Single A tranche, the subordination level is the percentage of the issuance that is junior to the Single A tranche. However, since Single A is the most junior tranche specified, it is not subordinated to any other tranche, and therefore it has no subordination. As such, the calculation for subordination level for the Single A tranche is not applicable.