Details

<p>Preface xi</p> <p>About the Authors xv</p> <p><b>Part One Introduction 1</b></p> <p><b>Chapter 1 Review of Collateralized Debt Obligations 3</b></p> <p>Understanding CDOs 3</p> <p>Cash Flow CDOs 10</p> <p>Synthetic Arbitrage CDOs 28</p> <p>Conclusion 37</p> <p><b>Chapter 2 Impact of CDOs on Collateral Markets 39</b></p> <p>Collateralized Loan Obligations and the High-Yield Bank Loan Market 39</p> <p>Structured Finance CDOs and the Mezzanine Mortgage ABS Market 42</p> <p>Trust Preferred Securities CDOs and their Collateral Market 46</p> <p>Conclusion 48</p> <p><b>Chapter 3 CDO Rating Experience 49</b></p> <p>CDO Rating Downgrade Data 50</p> <p>CDO and Tranche Rating Downgrade Frequency 52</p> <p>CDO Downgrade Patterns 54</p> <p>Why Downgrade Patterns? 56</p> <p>Downgrade Severity 58</p> <p>Extreme Rating Downgrades 58</p> <p>CDO “Defaults” and Near “Defaults” 61</p> <p>Summary 71</p> <p><b>Part Two Developments in Synthetic CDOs 73</b></p> <p><b>Chapter 4 ABS CDO Collateral Choices: Cash, ABCDS, and the ABX 75</b></p> <p>Growth of the Subprime Synthetic Market 75</p> <p>Importance of ABCDS to CDO Managers 76</p> <p>ABCDS 79</p> <p>The ABX Index 82</p> <p>Fundamental Contractual Differences—Single-Name ABCDS/ABX Index/Cash 83</p> <p>Supply/Demand Technicals 89</p> <p>What Keeps the Arbitrage From Going Away? 92</p> <p>Bottom Line—Buyers versus Sellers 94</p> <p>The Cash/ABCDS Basis and the CDO Arbitrage 94</p> <p>Single-Name ABCDS versus ABX in CDOs 96</p> <p>Summary 97</p> <p><b>Chapter 5 Hybrid Assets in an ABS CDO 99</b></p> <p>Corporate CDS and ABCDS 100</p> <p>Advantages of Hybrid Assets in an ABS CDO 103</p> <p>Illustrative Hybrid ABS CDO Structure 105</p> <p>Cash Flow Challenges 107</p> <p>Conclusions 115</p> <p><b>Chapter 6 Synthetic CDO Ratings 117</b></p> <p>Tests of Index Portfolios 117</p> <p>AAA Ratings and Expected Loss versus Default Probability 120</p> <p>Barbell Portfolios 121</p> <p>Summary 122</p> <p><b>Chapter 7 Credit Default Swaps on CDOs 125</b></p> <p>CDO CDS Nomenclature 126</p> <p>CDO Credit Problems and their Consequences 127</p> <p>Alternative Interest Cap Options 130</p> <p>Miscellaneous Terms 133</p> <p>Cash CDO versus CDO CDS 134</p> <p>Exiting a CDO CDS 135</p> <p>Rating Agency Concerns on CDOs that Sell Protection via CDO CDS 136</p> <p>Summary 137</p> <p><b>Part Three Emerging CDO Products 139</b></p> <p>Chapter 8 Trust-Preferred CDOs 141</p> <p>Trust-Preferred Securities 141</p> <p>Other TruPS CDO Assets 144</p> <p>TruPS CDO Issuance 144</p> <p>Bank TruPS Prepayments and New CDO Issuance 147</p> <p>TruPS CDO Structure 148</p> <p>Assumptions Used by Rating Agencies 150</p> <p>TruPS CDO Performance 161</p> <p>TruPS Issuers and Issues 163</p> <p>Summary 166</p> <p><b>Chapter 9 Commercial Real Estate Primer 169</b></p> <p>Loan Origination 170</p> <p>Property-Level Loans 172</p> <p>Commercial Mortgage-Backed Securities 178</p> <p>REIT Securities 182</p> <p>Evaluating CREL and CMBS 183</p> <p>CREL Historical Performance 186</p> <p>CMBS Historical Performance 197</p> <p>Summary 203</p> <p><b>Chapter 10 Commercial Real Estate CDOs 205</b></p> <p>CRE CDO Defined 205</p> <p>Market Trends 207</p> <p>CRE Finance before CDOs 209</p> <p>Types of CRE CDOs 210</p> <p>CRE CDO Performance 211</p> <p>Investors 212</p> <p>CRE CDO Credit Analysis 214</p> <p>Rating CRE CDOs 215</p> <p>Summary 220</p> <p><b>Chapter 11 CRE CDO Relative Value Methodology 221</b></p> <p>Whole Loan CREL CDOs versus High-Yield CLOs 221</p> <p>Investment-Grade CMBS CDOs versus Mezzanine Structured Finance CDOs 228</p> <p>Relative Value among CRE CDOs 234</p> <p>Summary 241</p> <p><b>Part Four Other CDO Topics 243</b></p> <p><b>Chapter 12 Rating Agency Research on CDOs 245</b></p> <p>Using Rating Watches and Outlooks to Improve the Default Prediction Power of Ratings 245</p> <p>Changes in Rating Methodologies 252</p> <p>Conclusions 255</p> <p><b>Chapter 13 Collateral Overlap and Single-Name Exposure in CLO Portfolios 257</b></p> <p>Collateral Overlap in U.S. CLOs 258</p> <p>Favorite CLO Credits 263</p> <p>Single-Name Risk and Tranche Protections 265</p> <p>Excess Overcollateralization and Excess Overcollateralization Delta 266</p> <p>Summary 272</p> <p>Index 275</p>

<p><b>DOUGLAS J. LUCAS</b> is Executive Director at UBS and head of CDO research. He has an MBA from the University of Chicago. <p><b>LAURIE S. GOODMAN, P<small>H</small>D,</b> is co-Head of Global Fixed Income Research at UBS. She holds a PhD in economics from Stanford University. <p><b>FRANK J. FABOZZI, P<small>H</small>D, CFA,</b> is Professor in the Practice of Finance at Yale University's School of Management and the Editor of the <i>Journal of Portfolio Management</i>. <p><b>REBECCA J. MANNING</b> is an Associate Director in the CDO Research Group at UBS. She holds an MBA from The Wharton School at the University of Pennsylvania.

<p>Anyone familiar with collateralized debt obligations (CDOs) knows that change and innovation within the CDO market are increasing at a rapid rate—and will probably continue to do so for the foreseeable future. In order to keep up with this dynamic market and its various instruments, you need a guide that provides you with the most up-to-date information available. That's why Douglas Lucas, Laurie Goodman, Frank Fabozzi, and Rebecca Manning have collaborated to bring you <i>Developments in Collateralized Debt Obligations</i>. <p>Written in a clear and accessible style, this detailed follow-up to <i>Collateralized Debt Obligations, Second Edition</i> contains the latest insights regarding the evolving nature of the CDO market. In fact, a majority of the chapters in this book couldn't have been written one year ago, as their subjects simply did not exist. <p>Divided into four comprehensive parts, <i>Developments in Collateralized Debt Obligations</i> opens with an introductory section (Part One) that outlines the essential aspects of CDOs as well as the entire CDO market. Here, special attention is paid to the cash flow credit structure, credit rating agencies' methodologies, interest rate hedging, and CDO call features. After this brief review, you'll quickly move on to discover a wide range of new issues in this field through Part Two: Developments in Synthetic CDOs, Part Three: Emerging CDO Products, and Part Four: Other CDO Topics. Information addressed within these parts of the book includes: <ul> <li>The use of both cash and synthetic assets in the same CDO's collateral portfolio</li> <li>A comparison of subprime mortgage collateral in cash, credit default swap, and index forms</li> <li>An explanation of credit default swaps referencing CDOs</li> <li>CDO ratings and rating methodology changes made in 2006</li> <li>The growing influence CDOs have upon their underlying collateral markets</li> <li>Trust preferred securities issued by banks, insurance companies, and REITs</li> <li>Commercial real estate and commercial real estate CDOs</li> </ul> <p>Whether you're an investment manager or institutional investor, understanding CDOs and handling their inherent complexities is more important than ever before. With <i>Developments in Collateralized Debt Obligations</i> as your guide, you'll learn how to navigate this dynamic market and take advantage of the many opportunities its products have to offer.

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