Western Asset Arbitrage

Darden Business Publishing Cases

ISSN: 2474-7890

Publication date: 20 January 2017

Abstract

The case introduces students to the nature of collateralized debt obligations (CDO) and the CDO origination process, with emphasis on the corporate structure of the special purpose vehicles, cash flows to various CDO tranches, and motivation behind CDO origination. Students will learn to quantitatively evaluate the risk-return profile of CDO tranches with emphasis on the equity tranche (also known as “toxic waste”). This is ideal for MBA and advanced undergraduate level courses on financial markets, financial institutions, and investments. In the case, an associate at the Debt Capital Markets desk of Lehman Brothers prepares a CDO issuance for Western Asset. Western Asset had been contacted by a group of commercial banks eager to sell senior secured bank loans and high-yield corporate bonds to lower their capital requirements and free up capital for additional lending.

Keywords

Citation

Loutskina, E. and Prabhu, R. (2017), "Western Asset Arbitrage", Darden Business Publishing Cases. https://doi.org/10.1108/case.darden.2016.000349

Download as .RIS

Publisher

:

University of Virginia Darden School Foundation

Copyright © 2008 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved.

Please note you might not have access to this content

You may be able to access this content by login via Shibboleth, Open Athens or with your Emerald account.
If you would like to contact us about accessing this content, click the button and fill out the form.