CDOs Overview (Collateralised Debt Obligations)


Collateralised Debt Obligations (CDOs), Asset Backed Securities (ABSs) and Mortgage Backed Securities (MBSs) besides CMOs and similar products are of increasing interest and importance in the Credit Market. Potential Investors see these instruments as providing a combination of security and a higher return.  Borrowers see them as useful tools to generate leverage in many situations e.g. Private Equity, Structured Products etc

This one day course assuming no prior knowledge in this area, aims to give an overview of:

  -The background to the Asset Backed Securities (ABS) market, widely defined;

  -Look at the origins and functions of Mortgage Backed Securities (MBS);

  -Explain why and how different institutions use the CDO market;

  -Describe in turn the different structures for CMO, CBO, and CLOs;

  -Explain the terminology in the market;

  -Provide examples and case studies of different CDO structures and uses.


        Fixed Income/Credit fund managers new to these products

        Bank Lending officers

        Institutional Bond Sales Staff

        Loan and bond Syndication staff


        Hedge Funds and Private Equity executives

        Finance Directors and Treasurers

        Back office staff

        Lawyers & Accountants (CPE and CPD credit)

        Regulators & Compliance Officers

        IT Executives marketing or designing systems that handle these products



Introduction to Securitization

This section provides an introduction to the area of securitisation, encompassing Asset Backed Securities (ABS) Mortgage Back Securities (MBS) and the role of Special Purpose Vehicles (SPV) together with sponsor and investor motivation.                    

-What is the meaning of Securitization?

-Whats the difference between ABS, MBS, CDO, CLO, CMO, CBO, CLN, etc?

-Who are the main players in the CDO market?  What are their motivations?

-How are the deals structured and credit rated? Whats the role of a SPV?

-Whats the role of certain derivatives such as CDS in these structures?

-What does credit enhancement mean and the idea of tranches?

 Introduction to Collateralised Mortgage Obligations (CMO)

-How has the CDO market evolved from the early mortgage pass- through? WAC and WAM and GNMA.

-Prepayment risk, contraction and extension risk

-How do Collateralised Mortgage Obligations work?

-Demand from investors, risk reward profiles

-Sequential bonds, PACS and SUPS

-Principal only and interest only classes

-Floaters and inverse floaters

-Collateralisation and interest coverage tests

 Introduction to Collateralised Bond Obligations (CBO)

The following section offers an overview of the collateralised bond obligation market, the different types of classes or tranches within the structure and how the CBO is credit rated.

-Diversification and the underlying bond pools

-Senior, mezzanine and equity tranche construction.  Cash flow and market value structures

-Why invest in a CBO?  Returns to investors

-Rating a CBO tranche, WARF score, Diversity score

-Modelling the probability loss expected losses.

-Credit rating the CBO Structure

-Sponsor motivation, Arbitrage or balance sheet transaction

 Introduction to Collateralised Loan Obligations (CLO)

This section looks at a CLO, how it is constructed and compares the merits of cash versus synthetic structures.

-How and why do banks sell on debt?

-Basle II accord and capital adequacy requirements Risk Weighted Assets, Obtaining capital relief

-CLO structure and the use of Special Purpose Vehicle (SPV)

-Cash and Synthetic CLOs

-Fully funded synthetic CLO

-Partially funded CLO structure

-What are Credit Default Swaps (CDS) and how are they used in CDOs?

-First default swaps, basket swaps, total return swaps

-Creating a super senior structure with CDS



Todays Date:

Duration 1 day
Available as an in-house tailored course

Investment Education PLC
45 Old Hall Road, Manchester M7 4JF, United Kingdom
Tel:+44 (0)161 832 3800
Registered in England Number 2129160
VAT Registered Number GB 480 2112 85

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