Synthetic Collateralized Loan Obligations

Abstract

The synthetic CDO structure is complex. Typically there is a special purpose corporation that holds the collateral, a variety of different types of CDO securities that are issued, credit derivative contracts to rearrange the risk exposures, and different possibilities for the regulatory capital requirements small variations in the structure might lead to. A good example of how an actual synthetic CDO works is the OLAN deal set up by Banque Nationale de Paris in 1999. In this case study, Stone and Zissu take us through the details.