固定收益证-券Collaterized-Debt课件.ppt
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- 固定 收益 Collaterized Debt 课件
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1、Chapter 16 Collaterized Debt Obligations Learning ObjectivesAfter reading this chapter, you will understandwhat is meant by a collateralized debt obligation, collateralized bond obligation, and collateralized loan obligationthe structure of a collateralized debt obligation and the role of the collat
2、eral managerthe difference between an arbitrage and balance sheet transactionthe economics underlying an arbitrage transactionthe motivation for a balance sheet transactionLearning Objectives (continued)After reading this chapter, you will understandthe difference between a cash flow transaction and
3、 a market value transactionthe types of restrictions imposed on management in a collateralized debt obligationthe difference between a cash and synthetic transactionthe need for an interest-rate swap in a cash transactionthe role of a credit default swap in a synthetic transactionStructure of a CDO
4、In a collateralized bond obligation (CDO) structure, there is a collateral manager responsible for managing the portfolio of debt obligations. The portfolio of debt obligations in which the collateral manager invests is referred to as the collateral. In individual issues held that comprises the coll
5、ateral are referred to as the collateral assets. The funds to purchase the collateral assets are obtained from the issuance of debt obligations.These debt obligations are referred to as tranches.The tranches include senior tranches, mezzanine tranches and subordinate/equity tranche.A CDO may or may
6、not have a mezzanine tranche.Structure of a CDO (continued) For the senior tranches, at least an A rating is typically sought. For the mezzanine tranches, a rating of BBB but no less than B is sought. The subordinate/equity tranche receives the residual cash flow; hence, no rating is sought for this
7、 tranche. There are restrictions imposed as to what the collateral manager may do and certain tests that must be satisfied for the CDO to maintain the credit rating assigned at the time of issuance.Structure of a CDO (continued) The proceeds to meet the obligations to the CDO tranches (interest and
8、principal repayment) can come from:i.coupon interest payments from the collateral assetsii. maturing of collateral assetsiii. sale of collateral assets In a typical structure, one or more of the tranches has a floating rate. With the exception of deals backed by bank loans that pay a floating rate,
9、the collateral manager invests in fixed-rate bonds. This creates a problem as the manager pays tranche investors a floating rate while investing in assets with a fixed rate.Structure of a CDO (continued) Arbitrage Versus Balance Sheet Transactions CDOs are categorized as either arbitrage transaction
10、s or balance sheet transactions. The categorization depends on the motivation of the sponsor of the transaction. In an arbitrage transaction, the sponsor seeks to earn the spread between the higher yield received on the collateral assets and the lower yield paid to the various tranches in the struct
11、ure. In a balance sheet transaction, the sponsors motivation is to remove debt instruments from its balance sheet.Structure of a CDO (continued) Cash Versus Synthetic Structures CDOs are also classified in terms of cash CDO structures and synthetic CDO structures.o The latter involve the use of cred
12、it derivatives. At the outset of this chapter, we will focus on cash CDO structures. The last section of this chapter will cover synthetic CDO structures.Arbitrage Transactions The key as to whether it is economically feasible to create an arbitrage CDO is whether a structure can offer a competitive
13、 return for the subordinate/equity tranche. The economics of arbitrage CDO structures show the need for the use of an interest-rate swap, and how the subordinate/equity tranche will realize a return. In determining whether or not to create a CDO, dealers will look to see if there is a potential retu
14、rn available to the equity tranche of a minimum amount. The threshold return is based on market conditions.Arbitrage Transactions (continued) Types of Arbitrage Transactions Arbitrage transactions can be divided into two types depending on the primary source of the proceeds from the collateral to sa
15、tisfy the obligation to the tranches.i.If the primary source is the interest and maturing principal from the collateral, then the transaction is referred to as a cash flow transaction.ii.If instead the proceeds to meet the obligations depend heavily on the total return generated from the collateral
16、(i.e., interest income, capital gain, and maturing principal), then the transaction is referred to as a market value transaction.Cash Flow Transactions Types of Arbitrage TransactionsIn a cash flow transaction, the objective of the collateral manager is to generate cash flow for the senior and mezza
17、nine tranches without the need to actively trade bonds.There are three relevant periods.i.The first is the ramp-up period.oThis is the period that follows the closing date of the transaction where the collateral manager begins investing the proceeds from the sale of the debt obligations issued.oThis
18、 period usually lasts from one to two years.ii.The reinvestment period or revolving period is where principal proceeds are reinvestedoThis period usually lasts for five or more years.iii. In the final period, the collateral is sold and the debtholders are paid off.Cash Flow Transactions (continued)
19、Distribution of IncomeIncome is derived from interest income from the collateral assets and capital appreciation.The income is used as follows.oPayments are first made to the trustee and administrators and then to the senior collateral manager.oOnce these fees are paid, then the senior tranches are
20、paid their interest.oAt this point, before any other payments are made, certain tests must be passed.oThese tests are called coverage tests.If the coverage tests are passed, then interest is paid to the mezzanine tranches.Once the mezzanine tranches are paid, interest is paid to the subordinate/equi
21、ty tranche.Cash Flow Transactions (continued) Distribution of Principal Cash Flow The principal cash flow is distributed as follows after the payment of the fees to the trustees, administrators, and senior managers.i.If there is a shortfall in interest paid to the senior tranches, principal proceeds
22、 are used to make up the shortfall.ii. After all the debt obligations are satisfied in full, if permissible, the equity investors are paid.iii. Management is permitted to share on some prorated basis once the target return is achieved.Cash Flow Transactions (continued) Restrictions on Management: Qu
23、ality Tests In rating a transaction, the rating agencies are concerned with the diversity of the assets. Consequently, there are tests that relate to the diversity of the assets and these tests are called quality tests . Quality tests consider:i.maturity restrictionsii.restrictions imposed on the co
24、ncentration of bonds in certain countries or geographical regions for collateral consisting of emerging market bonds A diversity score is a measure that is constructed to gauge the diversity of the collaterals assets.oThe greater the score value, the lower the likelihood of default.Cash Flow Transac
25、tions (continued) Restrictions on Management: Quality TestsOne can describe the distribution of the credit ratings of the collateral in terms of the percentage of the collaterals asset in each credit rating.However, there is a need to have one figure that summarizes the rating distribution test.Mood
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