Collateralized debt obligations : structures and analysis

Author(s)

• Lucas, Douglas J.
• Goodman, Laurie S.
• Fabozzi, Frank J.

Bibliographic Information

Collateralized debt obligations : structures and analysis

Douglas J. Lucas, Laurie S. Goodman, Frank J. Fabozzi

（The Frank J. Fabozzi series）（Wiley finance series）

J. Wiley, c2006

2nd ed

Note

Includes bibliographical references and index

Description and Table of Contents

Description

Since first edition's publication, the CDO market has seen tremendous growth. As of 2005, $1.1 trillion of CDOs were outstanding -- making them the fastest-growing investment vehicle of the last decade. To help you keep up with this expanding market and its various instruments, Douglas Lucas, Laurie Goodman, and Frank Fabozzi have collaborated to bring you this fully revised and up-to-date new edition of Collateralized Debt Obligations. Written in a clear and accessible style, this valuable resource provides critical information regarding the evolving nature of the CDO market. You'll find in-depth insights gleaned from years of investment and credit experience as well as the examination of a wide range of issues, including cash CDOs, loans and CLOs, structured finance CDOs and collateral review, emerging market and market value CDOs, and synthetic CDOs. Use this book as your guide and take advantage of this dynamic market and its products.

Table of Contents

Preface xiii About the Authors xxi Part One Introduction to Cash CDOs 1 Chapter 1 Cash CDO Basics 3 Why Study CDOs? 3 Understanding CDOs 4 Credit Structures 10 A CDO Structural Matrix 13 CDOs Being Offered Today 14 Parties to a CDO 14 Chapter 2 Cash Flow CDOs 17 Distribution of Cash Flows 17 Restrictions on Management: Safety Nets 20 Credit Ratings 23 Call Provisions in CDO Transactions 38 Part Two Loans and CLOs 41 Chapter 3 High-Yield Loans: Structure and Performance 43 The Loan Market 44 The Syndication Process 46 Loan Structure and Leaders 48 Loan Interest Rates and Upfront Fees 49 Loan Credit Quality 51 Lender's Liability 52 Overview of Loan Terms 53 Loan Terms versus Bond Terms 58 A Tale of Two Loans 58 The Secondary Market 60 Loan Recovery Rates 61 Loan Default Rates 63 High-Yield Loan CLO versus High-Yield Bond CBO Performance 67 Conclusion 74 Chapter 4 European Bank Loans and Middle Market Loans 75 European Bank Loans 75 Middle Market Loans 91 Conclusion 99 Part Three Structured Finance CDOs and Collateral Review 101 Chapter 5 Review of Structured Finance Collateral: Mortgage-Related Products 103 Residential Mortgage-Backed Securities 103 Commercial Mortgage-Backed Securities 125 Real Estate Investment Trust Debt 129 Chapter 6 Review of Structured Finance Collateral: Nonmortgage ABS 135 Credit Card Receivable-Backed Securities 135 Auto Loan-Backed Securities 137 Student Loan-Backed Securities 139 SBA Loan-Backed Securities 141 Aircraft Lease-Backed Securities 142 Franchise Loan-Backed Securities 145 Rate Reduction Bonds 148 Chapter 7 Structured Finance Default and Recovery Rates 153 Structured Finance versus Corporate Default Rates 154 S&P Rating Transition Studies and the Matrix Multiplying Approach 156 Results of Multiplying S&P Rating Transition Matrices 158 S&P on Structured Finance Loss Given Default 159 S&P Constant Annual Default and Recoveries 159 Moody's Material Impairment Study 160 Comparing and Reconciling Structured Finance Default Rates 162 Moody's on Structured Finance Historical Loss Rates 164 Moody's Constant Annual Default and Recoveries 166 Blending S&P and Moody's Studies 167 Applying CDRs and Recoveries to SF CDOs 167 Conclusion 170 Chapter 8 Structured Finance Cash Flow CDOs 171 SF CDOs versus High-Yield CDOs 172 Rating Agencies on Structured Finance CDOs 174 Structured Finance Assets' Negative Convexity 182 Extension Risk 183 Conclusion 185 Part Four Other Types of Cash CDOs 187 Chapter 9 Emerging Market CDOs 189 EM Sovereign Bond Defaults 190 Why the Better Track Record? 192 CDO Rating Differences: EM versus High Yield 193 Conclusion 198 Chapter 10 Market Value CDOs 201 Cash Flow versus Market Value Deals 201 The Rating Process 202 How Advance Rates are Derived 212 Conclusion 215 Part Five Synthetic CDOs 217 Chapter 11 Introduction to Credit Default Swaps and Synthetic CDOs 219 Credit Default Swaps 219 Synthetic CDOs 229 Conclusion 239 Chapter 12 Synthetic Balance Sheet CDOs 241 Cash CLOs for Balance Sheet Management 241 Partially Funded Synthetic CDOs 249 Conclusion 253 Chapter 13 Synthetic Arbitrage CDOs 255 Full Capital Structure Synthetic Arbitrage CDOs 256 Single-Tranche CDOs 260 Standard Tranches of CDS Indices 261 Conclusion 262 Chapter 14 A Framework for Evaluating Trades in the Credit Derivatives Market 265 Assessing Single-Name and CDO Tranched Exposures 266 Assessing CDO Equity versus a Basket Swap 274 Conclusion 280 Chapter 15 Structured Finance Credit Default Swaps and Synthetic CDOs 281 Differences between Corporate and Structured Finance Credit 282 Difficulties in SF CDS 284 SF CDS Effect on SF CDO Management 294 Two New Types of SF CDOs 295 Effects of SF CDS on CDO Credit Quality and Spreads 296 Conclusion 297 Part Six Default Correlation 299 Chapter 16 Default Correlation: The Basics 301 Default Correlation Defined 301 Default Probability and Default Correlation 305 Conclusion 321 Chapter 17 Empirical Default Correlations: Problems and Solutions 323 Empirical Results 323 Problems with Historical Default Correlations 327 Proposed Solutions 330 Conclusion 344 Part Seven CDO Equity 345 Chapter 18 Why Buy CDO Equity? 347 Nonrecourse Term Financing 347 The Forgiving Nature of CDO Financing 354 CDO Options 356 CDO Equity as a Defensive Strategy 359 Conclusion 360 Chapter 19 CDO Equity Returns and Return Correlation 361 Flawed Methodologies 362 The Appropriate Lesson from History 365 Loan Defaults and Recoveries 367 Cash Flow Modeling Defaults and Recoveries 370 Structured Finance Defaults and Recoveries 371 SF CDO Cash Flow Modeling 372 Return Correlation and Nonrecourse Leverage 374 Conclusion 378 Part Eight Other CDO Topics 379 Chapter 20 Analytical Challenges in Secondary CDO Market Trading 381 Important Developments: Spread Tightening, Increased Activity 382 Pitfalls in Secondary CDO Trading 384 Eight-Point Checklist in Evaluating a CDO in the Secondary Market 387 Prescription for Making Primary Issuances Conducive to Secondary Trading 408 Conclusion 409 Chapter 21 The CDO Arbitrage 411 Building Blocks 411 Impact of CDO Arbitrage on Structure 422 Conclusion 425 Chapter 22 How to Evaluate a CDO and Manage a CDO Portfolio 427 Incentive Clashes in CDO Structures 427 Evaluate Structural Enhancements 428 Evaluating the Manager's Track Record 429 Conclusion 434 Chapter 23 Quantifying Single-Name Risk Across CDOs 435 Collateral Overlap in U.S. CLOs 436 Favorite CLO Credits 437 Collateral Overlap in U.S. Structured Finance CDOs 439 Single-Name Risk and Tranche Protections 441 Excess Overcollateralization and Excess Overcollateralization Delta 443 Monte Carlo Simulation of Single Credit Risk 446 Comparing the Two Approaches 449 Conclusion 450 Chapter 24 CDO Rating Experience 453 CDO Rating Downgrade Data 454 CDO and Tranche Rating Downgrade Frequency 456 CDO Downgrade Patterns 458 Why Downgrade Patterns? 460 Downgrade Severity 462 Downgrades of Aaa CDO Tranches 464 Extreme Rating Downgrades 464 CDO Defaults and Near Defaults 469 Conclusion 473 Index 477

by "Nielsen BookData"

Details

• NCID: BA85039267
• ISBN:
  • 9780471718871
• Country Code: us
• Title Language Code: eng
• Text Language Code: eng
• Place of Publication: Hoboken, N.J.
• Pages/Volumes: xxii, 505 p.
• Size: 24 cm
• Classification:
  • LCC : HG4028.A84
  • DC21 : 332.63/2
• Subject Headings:
  • LCSH : Asset-backed financing
  • LCSH : Debt
• Parent Bibliography ID:
  • BA56819502
  • BA5197584X