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Published: Thursday April 29, 2010 12:00 am EDT
Cdo
[ Collateralized Debt Obligation ]
adjective
realm: finance
The Cdo is a financial instrument used by sophisticated investors to manage or lay-off risks on one or a series of credit exposure(s).
Foundations
The Collateralized Debt Obligation is an investment-grade security backed by tangible assets.
Every Cdo is rated for its risk by a securities rating firm such as Moody’s, Standard and Poor’s, etc.
Cdos can be created for any sort of debt obligation, but until recently they were used most often in packaging non-mortgage loans or bonds.
The Cdo is a derivative security whose value is determined by some other event, contract, market index, interest rate, or nearly any other imaginable set of conditions.
The buyer of a Cdo assumes the credit risk.
Examples
Goldman Sachs: ABACUS 2007AC1
Merrill Lynch: Norma Cdo