Private Civil Litigation Involving Collateralized Debt Obligations

As the subprime meltdown metasta-sized into a generalized credit and liquidity crisis, there occurred an explosion of litigation involving securitizations and synthetic credit risk transfers. A significant focus of this litigation has been the market for collateralized debt obligations (CDO), which...

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Bibliographic Details
Published in:The journal of structured finance 2009-10, Vol.15 (3), p.37-43
Main Authors: Mehta, Kiran H, Nolan, Anthony R.G
Format: Article
Language:English
Subjects:
Asset backed securities
Cash flow
Collateral
Collateralized debt obligations
Credit risk
Institutional investments
Investors
Lines of credit
Liquidation
Liquidity
Litigation
Mortgage backed securities
Portfolio investments
Portfolio management
Securitization
Seniority
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Summary:As the subprime meltdown metasta-sized into a generalized credit and liquidity crisis, there occurred an explosion of litigation involving securitizations and synthetic credit risk transfers. A significant focus of this litigation has been the market for collateralized debt obligations (CDO), which from modest beginnings in the mid-1990s had grown to approximately $200 billion in annual funded issuance by the end of 2007. A CDO is a closed-end pooled investment vehicle that issues multiple tranches of limited-recourse debt and equity securities and uses the offering proceeds to acquire fixed-income securities (or collateralize synthetic exposure to fixed-income securities). Most CDO litigation has involved disputes among investors and other claimants to cash flows of structured finance CDOs following events of default. Litigation involving participants in CDOs constitutes an interesting subset of the litigation arising from securitization activity. Although in many respects similar to litigation arising from other types of securitization, it raises distinct issues.
ISSN:1551-9783
2374-1325
DOI:10.3905/JSF.2009.15.3.037