“Imputed Losses Becoming Real in the Current Wave of ABS CDO Events of Default”

A recent article that focused on statistical information relating to defaults, accelerations and liquidations of structured products CDOs, noted at its close that “None of the affected CDOs, which now have $66 billion of paper outstanding, missed payments before the trustees took action.”  This brief but telling comment set in high relief a curious element of the documentary mechanisms that are deconstructing a large portion of the ABS CDO world: The current wave of accelerations and portfolio sales are largely or entirely the result of what arguably are “technical” defaults under the CDO documents.

This Stroock Subprime Task Force Special Bulletin examines how, despite a structural aversion in CDOs to events of default and liquidations, the current rash of events of default and the growing number of liquidations has occurred.