Managed CDOs versus static CDOs

Original CDOs had a ‘static’ structure, meaning it was difficult if not impossible to change the credits regardless of performance. The credit crisis of 2001 and 2002 forced issuers to structure deals that included mechanisms for monitoring their components

In the early days of the market, most CDOs were static, or passive, instruments, where a pool of assets is selected and held constant over the life of the transaction. “The early static deals appealed to investors because of their simplicity, transparency, shorter maturities and relatively wide spreads,” comments a Deutsche Bank report published in April 2003.

More recently, however, the very well-documented credit events at companies such as Enron and WorldCom in the US, and at Parmalat in