Credit Index tightening and CPDOs

Cheng · Post by **Cheng** » Fri Apr 27, 2007 9:05 am

Both DBRS and Fitch did some backtesting to see what would have happened if you did a CPDO at some time in the past. Depending on timing there is a fair chance that the CPDO trades as low as 15% of initial NAV. Quite a nasty surprise for something that looks AAA in the beginning.

rowdyroddypiper · Post by **rowdyroddypiper** » Sat Apr 28, 2007 12:28 am

[i]Both DBRS and Fitch did some backtesting to see what would have happened if you did a CPDO at some time in the past.[/i]

Slagging off the other agencies methodology relating to products for which you have ~0 market share is old hat amongst these guys. Not to say I agree with how you get to a AAA for a CPDO, just that Fitch and DBRS are much more incentivised to shine a light on a market they have not share in than in their own back yard. Cheng, do you have their backtesting piece? I'd like to look at it if possible.

Cheng · Post by **Cheng** » Sat Apr 28, 2007 9:39 am

RRP, I think their intention is totally clear and nobody will ask these guys to rate a CPDO. But isn't this just the interesting thing, to have some competing opinions from the underdogs Cool ?

I have a couple of them, will post it on Monday. The basic idea is always the same but to see how much this stuff depends on model assumptions is really scary. As a colleague of mine put it: "These things are similar to SIVs but SIVs are much more regulated and monitored."

rowdyroddypiper · Post by **rowdyroddypiper** » Sat Apr 28, 2007 6:06 pm

As a colleague of mine put it: "These things are similar to SIVs but SIVs are much more regulated and monitored."

That is an excellent point. In fact my boss has gotten it in his head that he wants to set up an SIV. I was on the verge of suggesting just doing a CPDO as SIVs are reporting and administrative nightmares. This is why I want to see these pieces. Despite the fact they generally aren't what I'd call experts, RAs are the tail that wag the dog in many markets. I've been spending the better part of two months getting firmly kicked in the nuts and it seems like the RAs went home and put on golf spikes for round two. I mean Moody's came out and said they were moving ratings on new issue CMBS 1 to 1.5 notches maybe more on a go forward basis. This necessarily implied that the bonds from a deal that I just (seriously, march 07) paid them 1MM a piece to rate are now percieved as having heightened downgrade risk with no change in collateral performance.

Thanks guys!

Cheng · Post by **Cheng** » Mon Apr 30, 2007 8:43 am

There is some new invention called "SIV light". Similar to a SIV in spirit but less cumbersome to set up. I think I have some presentations floating around in case you are interested.

RAs are wankers when it comes to structured credit. Even if their assumptions are not totally off the results usually are. The worst thing is that you have to pay for getting screwed Puke

[url=/User%20Files/464/Fitch_First%20Generation%20CPDO.pdf]Attached File: Fitch_First Generation CPDO.pdf[/url]

Seems like the other one is too big to be uploaded. I'm gonna shoot you a mail.

Cheng · Post by **Cheng** » Mon Apr 30, 2007 8:57 am

Note that all these papers are about the so called First generation CPDO, ie investing in an index portfolio and rolling every 6 months. Lately different structures appeared with managed bespoke portfolios, time-dependent leverage etc. Dunno how good or bad those are.

rowdyroddypiper · Post by **rowdyroddypiper** » Thu May 03, 2007 5:09 pm

Gracias for the paper. I'd be very interested in seeing anything you have on an SIV light.

Cheng · Post by **Cheng** » Fri May 04, 2007 8:53 am

I attached two, one about a bank loan (read: leveraged loan) SIV and one about a SIV light. Both are rather short but outline the general ideas.

[url=/User%20Files/464/Bank%20Loan%20SIV.pdf]Attached File: Bank Loan SIV.pdf[/url]

[url=/User%20Files/464/SIV%20light.pdf]Attached File: SIV light.pdf[/url]

AMRO Only · Post by **AMRO Only** » Fri May 04, 2007 4:22 pm

If you're interested in the DBRS report drop your mail address here.

MadMax · Post by **MadMax** » Fri May 04, 2007 4:34 pm

Baghead:"I apologise for Cheng to all Algerian/Northern African phorum members for this inappropiate post"

What was that supposed to mean?