What Is a Planned Amortization Class (PAC) Tranche?

[mansoor-bhatt-819b9bf6 (Mansoor Bhatt)]

A planned amortization class (PAC) tranche is a form of asset-backed instrument that protects investors from prepayment and extension risks. A planned amortization class tranche is set up to pay based on a primary payment schedule that is calculated using a variety of prepayment speed assumptions (PSA). The PAC collar refers to the range of prepayment speeds.