Loss Allocation in Securitization Transactions

Günter Franke (), Markus Herrmann () and Thomas Weber ()
Additional contact information
Markus Herrmann: Landesbank Baden-Württemberg, Germany
Thomas Weber: Axpo Holding AG (Baden) Aargau, Switzerland

No 2011-22, Working Paper Series of the Department of Economics, University of Konstanz from Department of Economics, University of Konstanz

Abstract: This paper analyses 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 Tobin´s Q prefer synthetic transactions.

Keywords: Securitization; collateralized debt obligations; asset pool quality; First Loss Position; synthetic transactions. (search for similar items in EconPapers)
JEL-codes: G10 G21 G24 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2011-04-26
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Related works:
Journal Article: Loss Allocation in Securitization Transactions (2012)
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