Bespoke panacea?

Substitution rights allow investors, third-party asset managers and even dealers to substitute healthy for deteriorating credits in bespoke single-tranche synthetic CDOs. Some dealers say they’re offering these options for free – but what value do they really add? By Gallagher Polyn


Bespoke single-tranche synthetic collateralised debt obligations (CDOs) are one of the most popular innovations in the CDO market in years. “We like the idea of selecting the underlying credits in the portfolio,” says Bob Coors, senior vice-president at Ace Guaranty Corporation in New York, which booked its first reverse-enquiry single-tranche deal in the first quarter of 2002. “This allows us to have greater control in managing our single-risk aggregations as well as limit the

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Credit risk & modelling – Special report 2021

This Risk special report provides an insight on the challenges facing banks in measuring and mitigating credit risk in the current environment, and the strategies they are deploying to adapt to a more stringent regulatory approach.

The wild world of credit models

The Covid-19 pandemic has induced a kind of schizophrenia in loan-loss models. When the pandemic hit, banks overprovisioned for credit losses on the assumption that the economy would head south. But when government stimulus packages put wads of cash in…

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