What is the first-loss cushion?

First-Loss Cushion

The first loss cushion is a credit enhancement that essentially refers to how much downside protection the originator covers. Our structures include a clause that requires originators to make our noteholders whole if there are losses on the portfolio up to a certain point, say 10% of the note amount. That 10% is our 'first loss' protection/cushion - meaning that our investors wouldn't experience a loss unless defaults exceed that percentage.