Over the past few months there has been an increasing interest in the market to develop CDO structures that reference a portfolio of commodity products. Standard & Poor's Ratings Services has responded to this market interest by developing a methodology for modeling the risk of loss associated with these structures. Commodity CDO structures provide fixed-income investors with exposure to the commodities market, giving them the opportunity to receive a risk premium by investing in a rated portfolio of commodity products. Commodity risk is repackaged in a tranched format that matches the investor's risk profile. The investor is exposed to the risk of portfolio losses exceeding the subordination level of the tranche in which he has invested. Like CDOs, the commodity...
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Research Type: Commentary
Criteria articles describe the thought process and methodology Standard & Poor's analysts use in determining ratings. These commentary pieces discuss both the quantitative (economic and financial) and qualitative (business analysis and caliber of management) aspects of the analysis, as well as legal issues.