Fitch: High-Grade Structured Finance CDOs On The Rise.Business Editors NEW YORK--(BUSINESS WIRE)--April 2, 2003 Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. has recently observed an increase in the issuance of structured finance collateralized debt obligations Collateralized Debt Obligation (CDO) A general inclusive term which covers Collateralized Bond Obligations, Collateralized Loan Obligations, and Collateralized Mortgage Obligations, (CDOs) with weighted average collateral ratings of 'AA' and 'AAA', versus the more typical weighted average collateral ratings of 'BBB' and 'BBB-'. Various cash flow, synthetic and market value structures have been used in securitizing high grade structured finance collateral. The development of CDO (Collaborative Data Objects) A programming interface from Microsoft for accessing MAPI-based e-mail, calendaring and scheduling servers. Originally called "OLE Messaging" and "Active Messaging," CDO wraps the Enhanced MAPI library into a COM object that provides the technology has resulted in innovative structural features that have made some high grade CDOs economically feasible. Examples include the use of short-term funding in cash flow CDOs, which lowers the overall funding liability of the CDO, and first to default basket trades Basket trades Related: Program trades. , which reference a portfolio of 'AAA' European structured finance assets. The short term funded tranches also have the added benefit of broadening the investor base by allowing money market and other short term investors to participate in the CDO market. The motivations to issue high grade structured finance CDO include increased assets under management Assets Under Management (AUM) is a term used by financial services companies in the mutual fund and money management or investment management business to gauge how much money they are managing. and management fees, diversification of CDO collateral types, arbitrage opportunities, balance sheet transfers, and a broader investor base. High grade structured finance CDO issuance could increase the size of the structured finance CDO market due to the abundance of high-grade structured finance collateral available. This is because of the high volume of ABS and mortgage-backed securities Mortgage-backed securities (MSBs) Securities backed by a pool of mortgage loans. (MBS See Mb/sec. MBS - mobile broadband services ) issues, and the senior/subordinate structures that these types of transactions often employ. Investors who may have become wary of the CDO market based on downgrades in high yield CDOs or certain ABS sectors such as manufactured housing or franchise loans, may be attracted to these types of CDOs because of the low risk and low volatility of high grade structured finance collateral. 'High Grade Structured Finance CDOs' is available on the Fitch Ratings web site at 'www.fitchratings.com' |
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