Structured credit

MD, Global Structured Credit Origination, Repackaging and Solutions... 

Although the products typically identify with structured credit seem extensive and often confusing, reflecting the numerous underlyings that are possible bonds, loans, credit default swaps, and so on versus CBOs, CLOs, CSOs, and so on. They all achieve a very similar value proposition they are vehicles to pool and redistribute risk. In many ways, all these products are best classified as derivative instruments given that they... 

Within the credit derivative market, a common tenor for transactions is the 5-year maturity. Credit default swaps have most liquidity at the 3-year and 5-year maturity/tenor. As a result, we often see that 5-year credit default swaps are used in structured credit transactions, such as collateralised synthetic obligations (CSOs) for this reason. Credit derivatives with a long maturity (over five years or with a short maturity (under one year) are less common. 

A variation on the generic TRS has been used in structured credit products such as synthetic collateralised debt obligations (CDO). An example of this is the Jazz I CDO B.V., which is a vehicle that can trade in... 

CDO structures may be either conventional or synthetic. The conventional structures were the first to be widely used, but synthetic ones have become increasingly common since the late 1990s. The difference between the two structures lies in how they transfer credit risk from the originator to the SPV in conventional CDO structures, this is achieved by transferring assets in synthetic structures, credit derivative instruments are used. 

The mark-to-market accounting rules accelerated the problem by creating a downward spiral of asset values as the secondary market dried up. Banks had to mark ABS assets at the market price, unconnected with the default performance of the underlying portfolios however, in a flight-to-quality environment, all structured credit products became impossible to trade in the secondary market, so values were marked down almost daily, in some cases down to virtually zero. The price of many securitized mortgage pools is well below their value now. The accounting rules force banks to take artificial hits to their capital without taking into account the actual performance of the pool of loans. 

The credit quality of the underlying asset pool is critical, since it determines the structures credit rating. It is common to allocate an average ratii to... 

Choudhry, M. 2010. Structured Credit Products Credit Derivatives and Synthetic Securitisation, 2nd ed. Singapore John Wiley Sons. 

About four years later, I got to know the man behind the reputation— first as a client and then as a dear friend. Speaking professionally, Moorad is a challenging and, at times, daunting client— having earned the respect of my mentor, Jim Croke, years before 1 ever started working with Moorad. He always demands the best work product, which is not easy to provide given his desire to create new, innovative and dynamic structured credit products. His drive is fostered by an academic zeal to find market efficiencies where others have failed to look, but his approach to deals is equally tempered by an overriding principle that his reputation as a scrupulous businessman must not be tarnished. He reminds me in many ways... 

In these constrained situations, there are ways in which a confirmed order or an invoice can be used by a firm to fund production cycles. Two possibilities are a supply chain structured-credit finance approach, and invoice discounting or factoring. 

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