Incentives Killed CDOs but CLOs Will Live

March 11th, 2008 · No Comments

 MortgageNewsClips welcomes our newest contributor, The Prince of Wall Street 

An interesting article by Vipal Mongra, entitled “In death, afterlife“, appeared in The Deal on Monday speculating about the future for Collateralized Debt Obligations (CDOs).  In the article Messieur Mongra speculates how CDOs may fair in comparison to other products/strategies that were pronounced dead only to rise again from the ashes.  Most notably the article points to how wrong many prognosticators were when the predicted, based on a wave of corporate defaults and broken deals, that LBOs and junk bonds would be gone forever.  The tone of  Mssr. Mongra’s piece seems to suggest that once this turmoil has passed mortgages will begin to be repackaged under a different name than CDOs then sold to investors.  The Prince must mostly disagree with this prediction.  Click here for why.

To read more please follow the link to “Incentives Kiled CDOs but CLOs Will Live”.  Here is another excerpt related to why CLOs will live from the post:

Now CLOs are another story.  Over the summer many CLOs were forced to sell corporate bank debt and high yield debt (mostly related to companies that were taken private) they owned to meet margin calls on the mortgage assets they held.  CLOs were the largest demanders of buyout related debt issuance.  In fact, CLOs represented almost two-thirds of primary demand for loans in the syndication mar