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ARCHIVE | Criteria | Structured Finance | CDOs: Global Cash Flow And Synthetic CDO Criteria: Hedging Considerations Mar 02
Standard & Poors, March 2002
Abstract
As discussed in the article titled 'Global Cash Flow And Synthetic CDO Criteria CDO: Structural And Collateral Considerations,' many CDO structures use swap agreements to transform the cash flow characteristics of the issuer's assets into payment terms sought by investors. Most commonly, the CDO will use some combination of interest rate swap and cap agreements to hedge its risks against interest rate mismatches between fixed rate assets and floating rate liabilities, or visa-versa. Similarly, it may be necessary to employ a basis-risk swap where the collateral consists of floating-rate assets linked to one index, while the liabilities pay interest based on another. In addition to these interest-rate and basis-risk swaps, a transaction may employ currency hedges where assets and liabilities...
Standard and Poors RatingsXpress Credit Research provides in-depth coverage of international corporates, financial institutions, insurance companies, utilities, sovereigns and structured finance programs. RatingsXpress Credit Research lets users determine the credit rating of holdings and identify key factors underlying an issuer's creditworthiness, distinguishes the different risk exposures for new and existing deals, and provides an understanding of how their analysts interpret key regulatory, political and environmental events and their economic impact.
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.
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