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  • CDO Structure

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    tvlodek
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    Synthetic collateralized debt obligations (CDOs) pool assets like bonds and loans through credit default swaps rather than holding the actual assets. This synthetic approach has grown hugely in popularity over traditional cash CDOs due to lower costs and easier execution. Synthetic CDOs divide the credit risk of the underlying asset portfolio into tranches of different risk classes, with super senior tranches having the highest ratings of AAA and losses from the portfolio being allocated from lower to higher tranches.

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    Synthetic collateralized debt obligations (CDOs) pool assets like bonds and loans through credit default swaps rather than holding the actual assets. This synthetic approach has grown hugely in popularity over traditional cash CDOs due to lower costs and easier execution. Synthetic CDOs divide the credit risk of the underlying asset portfolio into tranches of different risk classes, with super senior tranches having the highest ratings of AAA and losses from the portfolio being allocated from lower to higher tranches.

    Drepturi de autor:

    Attribution Non-Commercial (BY-NC)
    Descărcați ca PDF, TXT sau citiți online pe Scribd
    Indicator pentru conținut neadecvat
    55 vizualizări2 pagini

    CDO Structure

    Încărcat de

    tvlodek
    Synthetic collateralized debt obligations (CDOs) pool assets like bonds and loans through credit default swaps rather than holding the actual assets. This synthetic approach has grown hugely in popularity over traditional cash CDOs due to lower costs and easier execution. Synthetic CDOs divide the credit risk of the underlying asset portfolio into tranches of different risk classes, with super senior tranches having the highest ratings of AAA and losses from the portfolio being allocated from lower to higher tranches.

    Drepturi de autor:

    Attribution Non-Commercial (BY-NC)
    Descărcați ca PDF, TXT sau citiți online pe Scribd
    Indicator pentru conținut neadecvat
    din 2

    Synthetic Collateralized Debt Obligations

    Collateralized debt obligations (CDOs) are vehicles used to pool assets and enable investors with different risk / return appetites to participate in a particular tranche of those assets. The underlying assets might include bonds or loans or ABS or a variety of other asset classes. The assets are usually chosen and managed by an asset manager, with fairly strict trading restrictions. One of the largest growth areas has been in deals that use credit default swaps to give an indirect linkage to the underlying portfolio of credit risk. These are known as synthetic CDOs. Synthetic CDOs have experienced huge growth and appear to generally be the preferred choice. Market participants are attracted to the lower cost and ease of execution of synthetic CDOs vs. cash CDOs.

    SYNTHETIC CDO MECHANICS

    Super senior

    Portfolio of credit default swaps

    Super AAA AAA rated AA rated A rated BBB rated First loss (NR) Losses allocated from bottom up

    Divided into numerous Tranches BB-AAA Super AAA Super senior First loss First loss exposed to any portfolio losses Subordination First loss through AA tranches act as subordination to the AAA tranche

    Note: Portfolio tranches shown are not drawn to scale

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