Back to basics
We take you back to the credit basics to review everything you thought you already knew but were too afraid to ask... Rob Pomphrett, head of structured product syndicate at RBC Capital Markets in London, explains how CDOs work
A collateralised debt obligation (CDO) is the catch-all term for tranched risk of cash or synthetic underlying assets. In general terms, a CDO tranche represents a leveraged or de-leveraged position in a portfolio of credit risk. There are a variety of different structures in the market, but all CDOs have common basic features. They will have an underlying portfolio of collateral assets, which are either owned by the CDO or referenced via one or more credit default swaps (CDS), and a set of
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