Cash CDO Modelling with Excel : A Step by Step Approach

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  • Edition: 1st
  • Format: Hardcover
  • Copyright: 2010-06-28
  • Publisher: Wiley
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Supplemental Materials

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  • The New copy of this book will include any supplemental materials advertised. Please check the title of the book to determine if it should include any access cards, study guides, lab manuals, CDs, etc.


This book is an introduction to the modelling of cash collateralised debt obligations ("CDOs"). It is intended that the reader have a basic understanding of CDOs and a basic working knowledge of Microsoft Office Excel. There will be written explanations of concepts along with understandable mathematical explanations and examples provided in Excel. A CD-ROM containing these Excel examples will accompany the book.

Author Biography

DARREN SMITH, London, UK, currently heads the Credit Strrcturing team at WestLB. He has over 12 years’ experience in the cash CDO market, and has executed numerous transactions in asset classes as diverse as loans, bonds, emerging market bonds, asset backed securities, CDOs and credit default swaps. Prior to WestLB Darren worked in CDOs at PaineWebber, UBS, and was co-head of CDOs at Dresdner Kleinwort. He has spoken at numerous conferences including the Global ABS conference, Barcelona, and CDO Europe conferences sponsored by Opal. Darren holds a bachelor’s degree in Electronic Engineering from the University of South Australia.

PAMELA WINCHIE, London, UK, is currently a Managing Director at Cross Point Capital, London. Prior to this Pamela held positions as a Director in the European CDO group at Barclays Capital, and a Director in the CDO group at Dresdner Kelinwort. She has over 10 years’ experience both as a cash CDO structurer and as a laywer involved in corporate, securities and securitization law. She has modelled and structured numerous CDOs in various currencies with a range of underlying assets and has spoken at a number of conferences including the CRE-CDO Summit, London, the European CDOs & Credit Derivatives Conference sponsored by IMN and the International Structure Product Conference. Pamela holds a bachelor’s degree in Mathematics and Statistics from the University of Western Ontario and a Juris Doctor from Osgoode Hall Law School.

Table of Contents

To Excel or Not to Excel?
Existing Tools and Software
What is a Cash CDOs?
Types of CDOs
Description of a Cash Flow CDO
Life Cycle of a Cash CDO
Contribution to the "Credit Crunch"
Introduction to Modelling
Goals in Modelling
Modelling Philosophies and Trade-Offs
Organization and Layout of a Model
Life-Cycle Issues: Building an Adaptable Model
Prerequisites to Cash Flow Modelling
Modelling Dates
Interest Rate Curve Modelling
Present Value Modelling
Getting Started
Create the Input Sheet
The Value of Labelling
Modelling Assets
Initial Asset Pool: Rep Line Modelling vs. Actual Assets
The Collateral Sheet in the Cash Flow Model
Modelling Defaults and Recoveries
Modelling Reinvestment
Reinvestment Cohorts
Timing Models vs. Actual Timing
Simple Warehouse Modelling
Basic Waterfall Modelling
Basic Waterfalls
Layout and Design
Avoiding Negative Values
Timing Modelled vs. Actual Timing
Liabilities Cash Flows
Fees and Expenses Cash Flows
Interest Waterfall
Interest Waterfall (Available Funds after Payment)
Interest Waterfall Calculations
Principal Waterfall
Principle Waterfall (Available Funds after Payment)
Principal Waterfall Calculations
Adding Over-Collaterization Tests
Adding Interest Coverage Tests
Technical Issues with Coverage Tests
Outputs Sheet
Purpose of the Outputs Sheet
Collating Waterfall Outputs
Present Value
Weighted Average Life and Internal Rate of Return
Equity Analysis
Basic Auditing
Moody's Rating Agency Methodology
Introduction to Agency Methodologies
The Bet Approach
Evaluating the Collateral
Creating the Moody's Sheet and Related References in the Cash Flow Model
Default Profiles
Interest Rate Profiles
Running the Analysis
Variations on the BET
2009 Methodology Update
Standard & Poor's Rating Methodology
The S&P Approach
Evaluating the Collateral
Modelling Recovery Rates
CDO Evaluator
Default Rates
Interest Rate Stresses
Additional S&P Modelling Criteria
Building the S7P Sheet and Related References
Running the Stress Scenarios
Advanced Waterfall Modelling
Hedge Agreements
Fixed Notes
Variable Funding Notes
Liquidity Facilities
Interest Reserve Accounts
Other Structural Features
Combination Notes
Collateral Manager Equity Analysis
Maintaining the Cash Flow Model
Adapting Your Model for Different Capital Structures
Audit Sheet
Advanced Structuring Issues
Projecting Accrued Interest
Collating Collateral Cash Flows
Sourcing and Integrating Data From External Systems
Data Requirements
Trustee Reports
Loan Level Information Sources
Regulatory Applications of CDO Technology
The Basel Accords
Regulatory Capital Requirements for CDO Notes
The Standardized Approach for CDOS
The Internal Ratings-Based Approach for CDOS
The Internal Ratings-Based Approach for CDOS: The Ratings-Based Approach
The Internal Ratings-Based Approach for CDOS: The Supervisory Formula Approach
The Internal Ratings-Based Approach: Liquidiity Facilities, Overlapping Exposures, Credit Risk Mitigation and Early Amortization Features
Supervisory Provisions
Updates to Basel II
CDO Valuation
Basic Valuation Approaches
Traditional Underwriter Analysis
Fundamental Cash Flow Analysis
Using Rating Agency Models
Transition Matrices
In Conclusion
Table of Contents provided by Publisher. All Rights Reserved.

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