Fixed Income and Debt

Securitization - Part 4



This eCourse consists of two modules. A collateralized debt obligation (CDO) is a security backed by a pool of loans, bonds or other securities. A CDO deal is broken into multiple tranches, each with separate maturity and credit risk, appealing to different classes of investors. Various forms of credit enhancement are used and CDO tranches are rated by the main credit rating agencies. CDOs represented the fastest growing segment of the securitization market in the years leading up to the global financial crisis of 2007/9.

This module explains how CDOs are issued and structured, and outlines the common issuer and investor motivations for entering CDO deals.

In terms of structure, there are two types of collateralized debt obligation (CDO): cash flow CDOs and market value CDOs. They differ crucially in the way collateral is used to generate cash flows to pay noteholders, in how the structure is credit-enhanced, and in how the underlying collateral pool is managed. The ratings process for these structures also differs. Module 2 examine the structural differences between cash flow and market value CDOs. We will also observe how these instruments are rated, which is crucial to the pricing of a CDO. Finally, we will look at some commonly used exotic CDO structures.


On completion of this course, you will be able to:
- Identify the main features of collateralized debt obligations
- Differentiate between the variants of collateralized debt obligations
- Explain issuer and investor motivations in relation to collateralized debt obligations
- Define the structural specifics of cash flow and market value collateralized debt obligations
- Describe how rating agencies rate cash flow and market value collateralized debt obligations
- Identify the most commonly used exotic collateralized debt obligations


Module 1: Securitization - CDOs - An Introduction
Topic 1: Basics of Collateralized Debt Obligations
Topic 2: CDO Structures
Topic 3: Issuer and Investor Motivations

Module 2: Securitization - CDOs - Structures & Ratings
Topic 1: CDOs ?Structures
Topic 2: Exotic CDOs
Topic 3: CDOs ?Ratings


SFC:2.00, PWMA:2.00