Loss Allocation in Securitization Transactions
Günter Franke (),
Markus Herrmann and
Journal of Financial and Quantitative Analysis, 2012, vol. 47, issue 5, 1125-1153
This paper analyzes the loss allocation to first, second, and third loss positions in European collateralized debt obligation transactions. The quality of the underlying asset pool plays a predominant role for the loss allocation. A lower asset pool quality induces the originator to take a higher first loss position, but, in a synthetic transaction, a smaller third loss position. The share of expected default losses, borne by the first loss position, is largely independent of asset pool quality but lower in securitizations of corporate loans than in those of corporate bonds. Originators with a good rating and low Tobinâ€™s Q prefer synthetic transactions.
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Working Paper: Loss Allocation in Securitization Transactions (2011)
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