CDO-Squared

CDO-Squared is an investment in the form of a special-purpose entity (SPE) with securitization payments backed by collateralized debt obligation tranches. A collateralized debt obligation is a product structured by a bank in which an investor buys a share of a pool of bonds, loans, asset-backed securities, and other credit instruments. Payments resulting from those bonds, loans, asset-backed securities, and other instruments are then passed on to the holders of the shares of the collateralized debt obligation. It is a way to invest in multiple credit instruments and diversify risk. ^{[1] [2]} These instruments became popular before the 2008 financial crisis. There were 36 CDO-Squared deals made in 2005, 48 in 2006 and 41 in 2007. Merrill Lynch was a big producer, creating and selling 11 of them. ^[3]

The collapse of the market for collateralized debt obligations and CDO-Squared contributed to the 2008 subprime mortgage crisis. ^[2] Goldman Sachs appears to be the last bank to hold CDOs-Squared, holding $50 million (~$59.8 million in 2023) in June 2018. ^[4]

2004 Abacus 2004-2 Abacus 2004-3 ACA 2004-1 Cascade Funding I Crystal Cove Davis Square Funding III Dunhill E-Trade III Glacier Funding I Glacier Funding II Independence V Jupiter High Grade Lakeside II Sierra Madre Funding

2005 Abacus 2005-1 Abacus 2005-2 Abacus 2005-3 Abacus 2005-5 Adirondack 2005-1 Altius I Funding Broderick 1 Camber 3 Plc Class V Funding Coolidge Funding Davis Square Funding IV E-Trade IV Fort Sheridan Glacier Funding III G Street Finance Huntington Independence VI Jupiter High Grade I Jupiter High Grade II Jupiter High Grade III Khaleej II Kleros Preferred Funding Lenox Lexington Capital Funding

2006 Auriga Bernoulli High Grade I Broadwick Funding Broderick 2 Class V Funding II Commodore V Davis Square Funding VI Fortius II Funding GSC 2006-2m Hout Bay 2006-1 Hudson High Grade Funding 2006-1 Hudson Mezzanine Funding 2006-1 Independence VII Ipswich Street Jupiter High Grade IV Kleros Preferred Funding II Kleros Preferred Funding III Kleros Real Estate I Kleros Real Estate II Kleros Real Estate III Libertas Preferred Funding I Octans I Pampelonne I West Coast Funding I

2007 Abacus 2007-AC1 Glacier Funding V Newbury Street Norma I Point Pleasant 2007-1 Timberwolf 1 Vertical 2007-1 Volans

^[5]

References

1. "CDOs-Squared Demystified" (PDF). Nomura Fixed Income Research. 2005. Retrieved 2018-10-04.
2. "Collateralized Debt Obligation (CDO-Squared) Overview". Investopedia. Retrieved 2024-11-28.
3. The Financial Crisis Inquiry Report, 2011, p.203
4. Woodall, Louie (2018-10-03). "Goldman Sachs is last major bank holding CDO squared". Risk Quantum.
5. "CDO Library : Financial Crisis Inquiry Commission".

Sources

• Adams, Andrew; Bhatt, Rajiv; Clunie, James (1 June 2009). "The Risks in CDO-Squared Structures" (PDF). Multinational Finance Journal. 13 (1/2): 55–74. doi:10.17578/13-1/2-3. ISSN   1096-1879.