By Janet M. Tavakoli
"Collateralized Debt duties and established Finance offers a cutting-edge examine the exploding CDO and dependent credits items marketplace. monetary professional Janet Tavakoli - writer of the commonly well known credits Derivatives and artificial buildings - examines a number of securitization issues by no means earlier than visible in print, together with the massive raise within the CDO arbitrage created through synthetics; the tranches most in danger from this new expertise; dumping securitizations on financial institution stability sheets; the abuse of offshore automobiles via businesses akin to Enron; and securitizations made attainable by way of new securitization ideas and the creation of the Euro."--BOOK JACKET. Read more...
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Additional info for Collateralized debt obligations and structured finance : new developments in cash and synthetic securitization
Often captive ﬁnance companies and independent companies can obtain capital at rates better than those obtainable for the originator of the securitized assets. Securitization may transfer the risk of assets or liabilities to allow a bank originator to do additional business without ballooning its balance sheet. Corporations use structured ﬁnance vehicles to ﬁnance assets used in the course of their business. Securitization can enable a ﬁnancial institution to exploit regulatory capital arbitrage.
Treasury market as interest rates fluctuate. Since interest rates had been volatile, by 1986 there were a variety of outstanding issues with a variety of coupons. For a discounted issue trading at a price of 99, one received a lower coupon than a current issue would offer, but if interest rates declined, it was likely that mortgage prepayments would speed up. Then one would get repayments of principal at 100. If one bought a premium security, one could enjoy a high coupon, but the investor hoped that prepayments declined.
These were securitizations of the life insurance premiums owed to Prudential. The ﬁrm provided actuarial information showing drop-out rates and potential death rates of the premium payers so investors could get an idea of the future cash ﬂows. ” This structure was one of the early “future ﬂows” deals. The risk was whether or not the projected future cash ﬂows would be realized due to the ultimate lack of future of the premium payers. Traditionally, securitization has been a means for banks to reduce the size of their balance sheets and to reduce the risk on their balance sheets.