What are Credit Derivatives?
Shop for it:
(added from 1 site)
Description:
If the underlying assets are mortgages or loans, there are usually two separate waterfalls because the principal and interest receipts can be easily allocated and matched. But if the assets are income-based transactions such as...
See more »
If the underlying assets are mortgages or loans, there are usually two separate waterfalls because the principal and interest receipts can be easily allocated and matched. But if the assets are income-based transactions such as rental deals it is not possible to differentiate so easily between how much of the revenue is income and how much principal repayment. In this case all the income is used to pay the cash flows due on the bonds as those cash flows become due. So the distribution could be shown as: 1. Fees 2. Class A interest 3. Class B interest 4. Class A principal 5. Class B principal 6. Release cash to the originator But in the event of default the priority could change and there could be a structure such as: 1. Fees 2. Class A interest 3. Class A principal 4. Class B interest 5. Class B principal 6. Release cash to originator (equity tranche receives any residual cash)
See less »
Highlights:
The Bank for International Settlements reported in December 2004 that notional amount on outstanding credit derivatives was $4.477 trillion with a gross market value of $131 billion (Regular OTC Derivatives Market Statistics).
Added by 2 people