A question of structure


"Credit tranching is what creates the financing efficiency of the CDO; it's what creates the arbitrage." That was the opinion of Bear Stearns in a primer published in 2002. A common term used to describe the tranching concept of CDOs is the so-called 'waterfall' structure. The waterfall payment system describes the process by which holders of the most senior notes are paid in full first, with whatever is left after such payments have been made filtering down to more junior classes. The upper and

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