PowerPoint Slideshow about 'cds on abs documentation' - paul2
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The structured product synthetics market has experienced tremendous growth over the past year. Product development has been consistent with the growth pattern of the corporate credit derivatives market
CDS on ABS allows protection sellers to gain exposure to ABS assets that are not readily available in the cash market due to supply constraints
Allows protection buyers to hedge or take a short directional view in a more efficient manner than available in the cash market
Provides protection sellers leverage
Flexibility provides exposure types (index trades, tranche trades) not available before in the cash market
Percent covered of Outstanding Principal Amount - may be more than 100% of the face amount of the Reference Obligation
Adjusted by: (i) further issuance of fungible securities; (ii) cancellations of Outstanding Principal Amount resulting from purchases; (iii) Physical Delivery; and (iv) Implied Writedown (or reimbursements thereof)
WAC Cap Interest Provision – “Applicable” or “Not Applicable”.
If “Not Applicable”, then Interest Shortfalls are determined without regard to WAC caps. That is, if a cap kicks in to lower the amount of interest owed on the Reference Obligation, an Interest Shortfall DOES OCCUR under the CDS.
If “Applicable” and a cap kicks in to lower the amount of interest owed on the Reference Obligation, an Interest Shortfall DOES NOT OCCUR.
The original ISDA Form I had no such election but was drafted so that the application of WAC Caps and the like would always cause an Interest Shortfall.
This concept was only recently introduced, but based in early returns the market is sticking with “Not Applicable”