The following Financial Services guidance note provides comprehensive and up to date legal information covering:
Collateralised debt obligations (CDO) are complex, high-value transactions involving numerous parties, extensive documentation and, usually, several jurisdictions.
A CDO transaction involves an orphan shell company (known as a special purpose vehicle (SPV) established by the investment bank arranging the CDO transaction) issuing newly created structured finance instruments (being debt securities in the form of bonds or notes and referred to in this Practice Note as 'CDO securities') which are:
divided into several classes or tranches of varying size, credit rating and priority ranking (categorised as senior, mezzanine or subordinated)
backed, that is funded by and secured over, a diverse portfolio of financial assets (typically consisting of commercial loans, corporate bonds and/or structured finance securities (including asset-backed securities (ABS), mortgage-backed securities (MBS) and CDO securities issued by other SPVs)) acquired by the SPV
For information on SPVs, see Practice Note: The insolvency remote SPV in structured finance.
The newly issued CDO securities can be tailored to offer a risk/return profile which is correlated to the credit risk of selected parts of the underlying portfolio, in order to meet the needs of particular investors. The SPV will purchase the assets in the open market or directly from the balance sheet of the portfolio manager or arranging bank. It will fund this purchase with the
**Trials are provided to all LexisPSL and LexisLibrary content, excluding Practice Compliance, Practice Management and Risk and Compliance, subscription packages are tailored to your specific needs. To discuss trialling these LexisPSL services please email customer service via our online form. Free trials are only available to individuals based in the UK. We may terminate this trial at any time or decide not to give a trial, for any reason. Trial includes one question to LexisAsk during the length of the trial.
To view the latest version of this document and thousands of others like it, sign-in to LexisPSL or register for a free trial.
Existing user? Sign-in
Take a free trial
0330 161 1234
To view our latest legal guidance content,sign-in to Lexis®PSL or register for a free trial.