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

An article in the January 18, 2008 issue of Asset-Backed Alert, “‘Default Events’ Piling Up Among Strained CDOs,” which focused on statistical information relating to defaults, accelerations and liquidations of structured products collateralized debt obligations (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 asset backed securities (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.

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