Collateralized Debt Obligations: Structures and Analysis, Second Edition

Preface

The first edition of this book proclaimed “the market for collateralized debt obligations (CDOs) is the fastest growing sector of the asset-backed securities market.” Those words are still true four years later as we offer this second edition. In fact, with $200 billion of cash CDOs issued in 2005, another $200 billion of synthetic CDOs issued, and an incalculable amount of tranches referencing credit default swap (CDS) indices traded, the CDO market is probably the fastest growing financial product not only among asset-backed securities, but among all financial products.

As we also said four years ago, “there have been numerous and dramatic changes within the CDO market as it has evolved.” Since that statement, credit protections on CDOs have been tightened, high-yield loans have replaced high-yield bond collateral, and structured finance collateral, including high-grade collateral, has come to dominate issuance. Among synthetic CDOs, arbitrage and managed arbitraged CDOs have replaced balance sheet transactions, single-tranche CDOs have been created and have risen to dominance, and tranches referencing CDS indices have been created.

This second edition reflects the growing and evolving nature of the CDO market: It contains an additional one-third of text and three-quarters of the book contains new material.

This book covers many different aspects of CDOs and collateral underlying CDOs. Its 24 chapters are divided into eight parts:

• Part One: Introduction to Cash CDOs ...