Douglas J. Lucas's Collateralized Debt Obligations: Structures and Analysis, PDF

By Douglas J. Lucas

On account that first edition's e-book, the CDO industry has visible great progress. As of 2005, $1.1 trillion of CDOs have been extraordinary -- making them the fastest-growing funding car of the decade. that will help you stay alongside of this increasing marketplace and its quite a few tools, Douglas Lucas, Laurie Goodman, and Frank Fabozzi have collaborated to deliver you this absolutely revised and up to date new version of Collateralized Debt responsibilities. Written in a transparent and obtainable type, this beneficial source presents serious information about the evolving nature of the CDO industry. you will find in-depth insights gleaned from years of funding and credits adventure in addition to the exam of a variety of matters, together with money CDOs, loans and CLOs, dependent finance CDOs and collateral evaluate, rising industry and marketplace price CDOs, and artificial CDOs. Use this booklet as your consultant and make the most of this dynamic industry and its items.

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Additional info for Collateralized Debt Obligations: Structures and Analysis, 2nd Edition (Wiley Finance)

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The above analysis suggests that greater diversification is always better, since it means less variation of collateral returns. However, a higher diversity score also means that it may be likely the asset manager pushed for, and achieved, less equity in the deal. 5% rather than the 5% required on a deal with a diversity score of 45). Is there any such thing as too much of a diversification “good thing”? That depends on the asset manager. A large, broad-based asset manager may have considerable strength across all sectors and should c02-Cash Flow CDO Page 34 Monday, March 6, 2006 11:12 AM 34 INTRODUCTION TO CASH CDOs be able to handle the analysis—and risks—of a highly diverse portfolio.

When such debt is employed, the CDO must have a standby liquidity provider, ready to purchase the CDO’s short-term debt should it fail to be resold or roll in the market. A CDO will only issue short-term debt if its cost, plus that of the liquidity provider’s fee, is less than the cost of long-term debt. Sometimes a financial guaranty insurer will wrap a CDO tranche. Usually this involves a AAA rated insurer and the most senior CDO tranche. Again, a CDO would employ insurance if the cost of the tranche’s insured coupon plus the cost of the insurance premium is less than the coupon the tranche would have to pay in the absence of insurance.

2. The CDO market is opportunistic in the way it drops collateral types that are out of favor with investors and picks up collateral types that are in favor with investors. The best example of this is the switch out of poor-performing high-yield bonds and into well-performing highyield loans between 2001 and 2003. Also, certain types of ABS present in SF CDOs from 1999 through 2001 disappeared from later vintages: manufactured housing loans, aircraft leases, franchise business loans, and 12b-1 mutual fund fees.

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