Building Financial Confidence in the CDO Market

The CDO market is one of the fastest growing and most challenging segments of the fixed income market. While recent well-publicized losses have shaken market participants, opportunities remain, and issuance continues to grow. In this environment, however, there is an even greater need for tools to analyze these complex securities, so that investors, structurers and collateral managers can make critical financial decisions with confidence.

CDO investors are recognizing that they can no longer simply rely on rating agency analyses or simple static models. It is imperative that they understand the individual credits in their deals, as well as the particulars of each deal structure, in order to assess the deals' return and risk potential.

RiskMetrics Group's CDOManager is designed to meet the growing needs of decision-makers throughout the structured credit marketplace. The application is unique, combining rigorous credit modeling of the collateral portfolio with detailed handling of the CDO waterfall structure.

Comprehensive Collateral Analytics

Our results are obtained through a Monte Carlo simulation of the default times of the individual pieces of collateral. Asset types covered include bonds, loans, and asset-backed securities, as well as foreign exchange and interest rate hedges. This Monte Carlo approach allows for the analysis of the collateral at the level of specific issuers, rather than in aggregate terms as with other standard analyses. Other collateral approaches, including static Constant Annual Default Rate models and rating agency models, are also available within CDOManager.

A Powerful Waterfall Engine

Our open, XML-based scripting language enables the precise coverage of cashflow, synthetic, and hybrid transactions, all in a consistent framework that eliminates the need for bulky spreadsheet deal models. The framework is powerful enough to model the most complex CDO deal features, including OC and IC triggers, reserve accounts, and performance-based fees. At the same time, simple deals may be modeled in a straightforward text based format.

Generates Detailed Reports

For the collateral pool, CDOManager reports standard compliance descriptions as well as a full probability distribution of collateral performance through the life of the CDO. Information about industry and rating level risk concentration is also included. For CDO structures, the reporting engine produces individual tranche performance distributions, fair-pricing levels, shadow ratings, and sensitivities to individual issuers.

Vendor Site:- Riskmetrics