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Structured Products and Related Credit Derivatives: A Comprehensive Guide for Investors by BRIAN P. LANCASTER, FRANK J. FABOZZI, GLENN M. SCHULTZ

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CHAPTER 2

Structured Finance Operating Companies: SIVs, SLVs, and Other Structured Vehicles

Garret Sloan, CFA

Short-Term Debt Analyst

Wachovia Capital Markets, LLC

The growth of structured finance operating companies, including structured investment vehicles, structured lending vehicles, credit derivative product companies, and other forms of structured vehicles continues to increase with new programs, technologies, and asset classes being introduced. The trademark feature of structured finance operating companies is dynamic leverage, which allows structured vehicles to reduce or increase leverage in response to, or in anticipation of, market movements, collateral quality, and liquidity. Structured assets have grown as a proportion of most structured finance operating companies due to their historically low relative volatility, credit quality, and return profile. Within structured assets, residential mortgage-backed securities are the most prevalent asset type.

The purpose of this chapter is to explain the technology of the different types of structured finance operating companies. Our primary focus will be on one type of structured finance company: a structured investment vehicle.

STRUCTURED FINANCE OPERATING COMPANY DEFINED

The term structured finance operating company (SFOC) began at Moody's when, in reviewing the number of structured companies entering the market and the breadth of product types seeking ratings, the agency decided to consolidate its ratings approach when dealing ...

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