3February 19, 2004
Global Structured Finance ResearchCDO ResearchAnalyst
Structured Finance CDO HandbookChristopher Flanagan
Whats In an SF CDO?
SF CDOs source collateral from several distinct sectors of the broader structuredproducts market, including CMBS, RMBS, CDOs, ABS, and REITs. Collateralcomposition varies by deal, with individual deals sourcing from 0% to 100% of theircollateral from each of the above sectors. Several factors, including asset managerexperience, issuance volume, region, and arbitrage opportunity influence collateralcomposition. Despite differences between deals, US/European SF CDOs can bebroadly characterized into two sub-sectors
Real Estate SF CDO:
Greater than 60% of collateral is backed by residential orcommercial real estate (RMBS, CMBS, or REITs). In 2003, Real Estate CDOsaccounted for approximately 45% of funded SF CDO volume.
Diversified SF CDO:
Also referred to as multisector or ABS CDOs. Dealsin this category consist of a diversified mix of structured finance assets and, assuch, dont exhibit asset concentration (in Real Estate) described above. In 2003,Diversified CDOs accounted for approximately 55% of funded SF CDO volume.In addition to the two broad categoriesabove, SF CDOs may be distinguishedby several other characteristics, includ-ing: Cash/Synthetic, Arbitrage/BalanceSheet, or US/Europe. Chart 4 to Chart 9on the following page show the aggre-gate collateral composition (ConsumerABS, Commercial ABS, RMBS, CMBS,CDO, REIT) for deals completed in2003. Chart 10 to Chart 14 detail thecollateral breakdown within each of theaforementioned sectors. We stress, how-ever, that
different types of SF CDOshold these underlying asset classes inmaterially different proportions.
2003 SF CDO Collateral Distribution (total)
Source: JPMS, IFR Markets, MCM, S&P, Fitch, Moodys.
CDO15%CMBS19%Consumer ABS16%Other ABS2%Corp ABS6%REIT3%RMBS39%
SF CDOs can be classifiedas Real Estate or Diversified
SF CDO Sectors - Some Definitions
CLO, CBO, SF CDO, IG Synthetic CDO, Small-to-Medium Entity CDO, Other CDO
Conduit, Large Loan, Credit Tenant Lease
Student Loan, Auto, Card, Consumer Loan
Equipment, Health Care, Small Business Loan, Structured Settlement, Aircraft,Aerospace, Trade Receivables, Franchise
Unsecured corporate debt of company that invests in Regional Malls, Shopping Centers, OfficeBuildings, Warehouses
Prime* (Jumbo, Alt A), Home Equity (Subprime or B/C, 2nd Lien), NIMS, ManufacturedHousing, Prime European Mortgages (UK, Netherlands, Spain, Italy, Portugal)
*Note: Prime RMBS also traditionally includes the conforming Agency (Fannie Mae, Freddie Mac) paper, which is out of the scopeof this paper because it is guaranteed and not typically included in SF CDOs.
1. CDOs-of-CDOs (majority of collateral is tranches of other CDOs) can also be considered SF CDOs, but theyare beyond the scope of this paper.