Collateralized Debt Obligation CDO IIFL Knowledge Center

Such reference obligation includes rated debt securities that are both listed and unlisted, including those that are issued by SPVs created for infrastructure assets. Floating rate pricing, however, does not address the funding challenged posed by the asset liability mismatch. For this, maturity of assets has to be matched by the maturity of liabilities in order to ensure stable funding of the loan book. For home loans, thus, the lender needs liabilities that can have maturity matching the effective maturity of home loans, which could be eight to 10 years. However, as the data above shows neither HFCs nor even banks have such long maturity sources of liabilities. There are two mechanisms that this maturity mismatch can be addressed – by accessing long maturity liabilities with other types of financial institutions to fund home loans and by reducing the ‘holding period’ maturity of the home loans.

During its rebirth it is frequently termed as Bespoke Tranche Opportunity . Our consolidated loan book stood at Rs. 12,606 Cr as of March 31, 2022 compared to Rs. 13,017 Cr as of March 31, 2022 and Rs. 11,014 Cr as of June 30, 2021. Gross NPA and Net NPA stood at 3.52% and 2.31% respectively as of June 30, 2022 compared to 4.27% and 2.67% respectively as of March 31, 2022 and 3.46% and 1.89% respectively as of June 30, 2021. The loan book under the Resolution Framework for Covid-19 announced by RBI stood at 0.45% as of June 30, 2022 (0.81% as of March 31, 2022).

bespoke tranche opportunity

The trend in the overall credit facilities and commitments under the Shared National Credit Portfolio in the USA reflected significant growth over the years. The SNC Program is governed by an interagency agreement among the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency. The program enables review of risk in the largest most complex credits shared by multiple regulated financial institutions. Under the originate-to-distribute models, banks originate loans, earn fees in the process, and then distribute the loans to other investors through securitization, syndication or outright sale. The Committee concluded that the issue of standardisation appears to be an important constraint for India.

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Many believed them to have contributed to its start and spread. Careful analyses of the causes and consequences of the crisis revealed that poor consumer protection allowed risky, low-quality mortgage products, and predatory lending to proliferate. Inadequate regulatory regime failed to keep the system in check. A complex securitisation chain lacked transparency, standardisation, and accountability. Inadequate capital and lack of credit risk transfer left financial institutions unprepared to absorb the losses.

bespoke tranche opportunity

While there is no denying that there will be some immediate impact on consumption and on wages especially in the services sector that could impact consumption for few more quarters, a 20% drop in markets is disproportionate to the likely impact. This sharp correction should in one to two years look like an opportunity or a missed opportunity to investors. If that indeed turns out to be the case, this will not be the first such occasion.


Economic development and rising per capita income has created a new aspirational India. Housing is also one of the key priority areas for governments, both at the Centre and the States, since the Independence and will continue to remain so. Housing development is a key driver of broader economic and community development, employment creation, asset creation, and wealth accumulation. Michael Burry, the famed investor, recently revealed in bespoke tranche opportunity a regulatory filing with the US Securities Exchange Commission that he has bet more than half a billion against Tesla. Burry’s filing shows that he has put 800,100 shares of Tesla on long put contracts by the end of Q1 of this financial year. Financing these deficits required the USA to borrow large sums from overseas, much of it from countries operating trade surpluses, primarily the emerging economies in Asia and oil-exporting nations.

USA housing and monetary property dramatically declined in worth after the housing bubble burst. The CDO in particular enabled monetary establishments to obtain investor funds to finance subprime and different lending, extending or growing the housing bubble and generating large fees. A CDO basically places cash payments from a number of mortgages or different debt obligations right into a single pool, from which the cash is allocated to specific securities in a priority sequence. Instead, the traders retain persevering with funding exposure and should should make a fee to the CDO within the event the portfolio’s losses attain the senior tranche.

Cagamas bonds qualify as eligible liquidity for central bank operations. AAA-rated MBS issued by Cagamas enjoy a favorable regulatory treatment. Increasing efficiency in a securitisation transaction will mean reducing transaction costs. Transaction costs arise from the intrinsic nature of the transaction –activities and documentation, actual financial costs involved in providing credit enhancement, etc. Transaction costs also arise from legal and regulatory requirements that the transaction must meet. The Committee’s approach was to look at all the possible sources of transaction costs and make recommendations to minimize them without compromising on the robustness of the transaction.

  • Other pools of capital – mutual funds, insurance, pension funds, and individuals have not been significantly participating in securitisation.
  • Regulations can specify a minimum maturity threshold or rely on declared intent at the time of acquiring these securities in order to be classified as HTM.
  • Banks’ comfort with an ‘arm’s length’ PTC issuance without a proprietary diligence would develop as various aspects of the transactions are standardised along with greater disclosures about the transactions.

We focus on the specific intermediary model adopted by a host of countries that have experienced some success in growing the MBS market. We discuss the different kinds of state assistance, ranging from state ownership to tax breaks, and highlight their pros and cons. We identify the factors that tend to act as catalysts to enable the sector to take off.

Cons of the CDOs

Home loans are the longest maturity assets issued by any lender. Most home loans have a contractual maturity of 15 to 20 years and it can go as high as 30 years for younger borrowers. While prepayment of the home loan is very common, even after adjusting for prepayments, these home loans could have actual maturity of eight to 10 years, which is still the longest in the loan books of most lenders. The tranches can be of two type – time tranches and credit tranches.

bespoke tranche opportunity

Appendix and of this Report set out an overview of the conforming mortgage criteria currently employed by the NHB and by Fannie Mae in the US8,9. The committee recommends that the intermediary, when selecting loan pools for securitisation, expands on the criteria used by NHB to include metrics measuring the credit worthiness of the borrower, reason for taking loan and type of loan taken. Allied to the mortgage criteria, the GSE should also indicate servicing standards or milestones/ processes recommended for the servicing of conforming loans. This could help improve and drive standardisation of servicing practices in the market. Further, the committee also recommends that the criteria be flexible enough to ensure that loans are not rejected when found wanting in only one dimension. The collateralized debt obligation is offered to institutional investors in tranches or discrete classes based on the credit risk attached to every CDO.

In the first type of transaction, the originator only assigns the future receivables from the loan to the SPV and does not transfer the underlying security interest ie the mortgage to the SPV. The amount of the stamp duty depends on the state in which the transfer document is executed. Currently a few states cap the stamp duty as a reasonable level. As a result, these states have become the preferred locations for executing the transfer documents.

It is important to ensure the composition of the Board of the proposed intermediary enables transparent and effective decision-making. Ensuring a good mix of executive, non-executive and independent board positions will be an important factor influencing the effectiveness of the Board. The Companies Act, 2013 includes requirements for every listed company to have a minimum of one-third of directors to be independent1. SEBI requires at least 50 per cent of a listed company’s board to consist of non-executive directors, and additionally require that independent directors make up one-third or a half of the Board depending on the Chairperson selected2.

Understanding collateralized debt obligation (CDO)

Data standardisation opens up the way for process standardisation, including the standardisation of the qualifying criteria by which a mortgage can be securitised. This can have immense benefits, providing clarity early on, on whether a mortgage qualifies for securitisation. The case of the US post the GFC is particularly interesting, which has combined standardisation with flexibility.

Between 1996 and 2004, the USA present account deficit elevated by $650 billion, from 1.5% to 5.8% of GDP. No need to issue cheques by investors while subscribing to IPO. Just write the bank account number and sign in the application form to authorise your bank to make payment in case of allotment. No worries for refund as the money remains in investor's account." Prevent Unauthorized Transactions in your demat / trading account Update your Mobile Number/ email Id with your stock broker / Depository Participant.

Interest payments to non-resident investors in PTC should be aligned with the tax withholding rate that applies to interest income earned by non-resident holders of units of Real Estate Investment Trusts or Infrastructure Investment Trusts . Previous chapters of this report focused on key issues related to parties directly involved in a securitisation transactions – originators and investors. In this chapter, we focus on issues that do not directly impact a securitisation transaction but could act as enablers or catalysts in promoting the development of mortgage-backed securitisation.


צ’רלי בוזגלו, משרד עורכי דין ונוטריון

המשרד מתמחה במשפט מסחרי (תאגידים), דיני עבודה, דיני חוזים, נזיקין, זכויות יוצרים, לשון הרע, הגנת הפרטיות, דיני תקשורת, משפט וספורט, מקרקעין, משפט מנהלי, גישור ושירותי נוטריון.

משרדנו מאפשר נגישות, זמינות ונוחות רבה מאד לצורך מתן השירותים המשפטיים.

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