John Pitera's Market Laboratory Message Board

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : John Pitera's Market Laboratory

Public Reply Prvt Reply Mark as Last Read File

Previous 10 Next 10 Previous Next

To: John Pitera who wrote (7448)	11/8/2006 11:34:33 AM
From: John Pitera	Read Replies (3) of 33421

Ratings Alchemy: Turning "BBB" into "AAA" (the new CPDO Structure) riskchat.com From: Lara Affiliation: Consulting Address: www_lara@yahoo.co.uk Date: 29 Sep 2006 Time: 16:33:19 Comments Has any one looked at the ABN's new "AAA" rated Structured Credit product, the CPDO 10-year note? It basically takes the DJ CDX index and iTRAXX index (made up of average A-BBB rated obligations), leverages it up by about 15 times, and issues it as "AAA" rated FRN (ratings issued by S&P and Moody's). Here are the details: from FinanceAsia.com "ABN AMRO continues to lead credit derivative innovation with its first-ever Constant Proportion Debt Obligation ABN AMRO this week launched its first public constant proportion debt obligation (CPDO). This new form of synthetic credit investment carries a full AAA rating from Standard & Poors on both principal and coupon. It uses elements from both CDO and CPPI technology to produce a new non-principal-protected, fixed-income, credit-investment tool. The CPDO generates returns through exposure to a portfolio of credit default swaps (CDS) which is linked to highly liquid CDS indices. The size of the portfolio is adjusted dynamically so that the CPDO only uses the leverage it needs in order to make the scheduled principal and interest payments. The structure of the CPDO is designed to have a stable rating with a high likelihood of “cashing-in” to a risk-free investment that pays the stated coupon and principal at maturity. "This is the most exciting development in the credit market for several years. The absence of a full rating has made it historically difficult for investors to assess the risks and appropriately place dynamically leveraged credit products into a portfolio. By creating the CPDO with a full rating for the timely payment of both principal and interest we have solved this issue for our institutional investors and broadened the asset choice available to managers of credit portfolios," says Steve Lobb, global head of credit and alternative derivative marketing at ABN AMRO. He adds that the new product allows a wide range of investors who are restricted from investing in unrated securities to access credit instruments that use dynamic leverage for the first time. "

Report TOU Violation

Share This Post

Public Reply Prvt Reply Mark as Last Read File

Previous 10 Next 10 Previous Next