Solutions or smokescreens?

CDO downgrades in 2002 angered investors and forced dealers to devise a host of structural improvements. Which modifications are the rating agencies applauding – and which are just smokescreens? Keith Brody reports

Collateralised debt obligation (CDO) investors have suffered two years of pain as the collateral backing many of the deals – especially high-yield transactions – has plummeted in value. To lure investors back to the market, dealers have rolled out a number of structural improvements aimed at preventing significant changes in a CDO’s risk profile and protecting the divergent interests of different groups of CDO investors.

“There have been a number of performance issues with CDOs recently where

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