Glossary

Weighted Average Coupon (WAC)

Also known as: WAC

The average interest rate across all loans in a CMBS pool (or all certificates in a securitization), weighted by each loan's or class's outstanding principal balance.

WAC is a key disclosure in CMBS offering documents and ongoing remittance reports because the gap between the pool's WAC and the weighted average certificate coupon paid to bondholders — the excess servicing spread — funds servicing fees, trustee fees, and often the IO strip. As individual loans in the pool prepay, defease, or default and are removed from the collateral base, the pool's WAC shifts, which in turn affects the cash flow available to IO strip holders and the effective yield profile of the remaining certificate classes. Analysts also compute a weighted average life (WAL) alongside WAC to describe both the pool's income characteristics and its expected duration.