How does a CDO differ from an ABS transaction?
What will be an ideal response?
When the asset-backed security (ABS) market began, there was a debt product that employed the securitization to pool a diversified pool of some asset type and issue securities backed by the cash flow of the asset pool. These debt products are called collateralized debt obligations (CDOs). CDOs are a type of structured ABS with multiple "tranches" that are issued by special purpose entities and collateralized by debt obligations including bonds and loans. CDOs differ from ABS in that the pool of assets is actively managed by an entity referred to as the collateral manager. Asset-backed securities are credit enhanced to provide greater protection to bond classes against defaults. There are two general types of credit enhancement structures: internal and external.
One might note that although issuance of CDOs grew dramatically from the mid-1990s through early 2007, issuance for all but CLOs has stopped because of the dismal performance of this product. Market observers do not believe that the market for CDOs (other than CLOs) will be revived.
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Answer the following statement true (T) or false (F)
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Answer the following statement true (T) or false (F)