What is Credit-Adjusted OAS (COAS)?
Credit-Adjusted OAS (COAS) is the most conservative spread measure in whole loan analytics. It starts with OAS (which has already removed the prepayment option cost from the Z-Spread) and then subtracts the expected credit cost (CDR × Loss Severity). What remains is the premium the investor earns purely for illiquidity, structural complexity, and any model uncertainty. COAS is particularly useful for comparing loans across sectors with different credit profiles; a consumer solar pool and a CRE multifamily pool may have similar OAS but very different COAS after accounting for their different default and severity expectations.
Formula
COAS = OAS - Credit Cost Credit Cost = CDR × Loss Severity (in basis points) Example: OAS = 130bp, CDR = 1.5%, Severity = 50% Credit Cost = 1.5% × 50% = 0.75% = 75bp COAS = 130 - 75 = 55bp
How LoanBook Uses Credit-Adjusted OAS
LoanBook calculates COAS in the CU participation pricing engine and displays it in the spread decomposition waterfall. Credit cost is always computed by the pricing route (CDR × severity), never passed through the Hull-White engine.
Frequently Asked Questions
What is a good COAS for whole loans?
It depends on the sector and liquidity. Agency-eligible residential loans may have COAS near 0-20bp. Consumer participations typically 30-80bp. CRE and esoteric consumer types 50-150bp. Higher COAS compensates for illiquidity and structural complexity.
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