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Unformatted text preview: Collateralized Debt Obligations FIN 428 Prof. Hood hmc\ 1'\r~-k)\' ~ f ~ h t , A\tY\eJY\I[ cl= t\)D t'(~ \b-mil'l~\ i) \ ,6 :h\}\Alfe.d Cfecht-f\).Q ,.\ ~ L\bO bccrv'\ 7 What is a COO? A Collateralized Debt Obligation is a debt security that's value is determined from an underlying pool of debt securities. The key to a coO is the way that the losses work in the event of default of the underlying collateral. Instead of losses being directly tied to one security, the loss of a COO security has to do with the aggregate losses of the pool of collateral. A COO takes a set of assets and chops up the risk and sells it in pieces for different prices.- (Jn~\I1BS rfrl:. Me, em l'YJpleS Jil c-eo.chl D \S[.DS~~C'~ J What's a Tranche? Webster says - "a division or portion of a pool or whole" COO securities are sold as trenches. Earn tranche hils a total value and summing the trenches gets you to the total value of the pool....
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- Fall '11