How to adapt ISDA documents for CDOs

Author: | Published: 1 Apr 2005

The use of credit derivatives in the international capital markets has increased exponentially since their introduction in the 1990s, with the aggregate outstanding notional amount of credit default swaps doubling every two years or so to its current value of over $5 trillion. Each passing year sees the development of new credit derivative products in response to a continuing demand for yield and diversification on the part of investors and the pursuit of arbitrage opportunities on the part of arrangers. The most dynamic segment of the market continues to be the structured credit product arena, in which structurers combine capital markets instruments with credit derivatives. The asset class that has come to dominate this market segment is the synthetic collateralized debt obligation (CDO). A synthetic CDO is an issue of debt obligations structured so that the investor is exposed to the credit risk of a portfolio of underlying assets by virtue of a credit derivative (usually one or a number of credit default swaps) entered into...