Collateralized Debt Obligations (CDOs) and Collateralized Loan Obligations (CLOs) stand at the pinnacle of structured finance, representing some of the most intricate and powerful instruments in capital markets. For financial professionals, a comprehensive understanding of their underlying mechanics, from the meticulous process of collateral selection to the strategic distribution of risk, is a prerequisite for success. These products have fundamentally reshaped global credit markets, and this training course offers an unparalleled opportunity to master the quantitative and qualitative skills needed to navigate their complexities, providing a competitive edge in a highly specialized field.

This 10-day program is meticulously crafted for professionals who already have a foundational knowledge of structured finance and are now seeking a deep dive into the world of CDOs and CLOs. The curriculum moves beyond basic definitions to cover advanced topics such as deal modeling, tranche valuation, and the crucial role of collateral management in ensuring performance. We will explore the lifecycle of these products through real-world case studies, equipping you with the practical expertise to analyze deal prospectuses, model cash flows, and effectively manage the unique risks associated with these complex securities. This is an essential program for anyone looking to become a true expert in structured credit.

Duration

10 days

Target Audience

• Structured credit analysts and portfolio managers
• Credit risk and quantitative risk managers
• Investment banking associates in structured products
• Buy-side analysts specializing in fixed-income
• Professionals at credit rating agencies
• Legal and compliance officers focused on securitization
• Auditors and consultants for financial institutions
• Experienced professionals transitioning into structured finance roles
• Anyone seeking advanced, specialized knowledge of CDO and CLO structures

Objectives

• Define and differentiate between various types of CDOs and CLOs.
• Understand the complete lifecycle of a CDO/CLO deal, from inception to maturity.
• Analyze the key drivers of cash flow and the waterfall distribution to tranches.
• Apply advanced valuation and modeling techniques for structured credit products.
• Identify and assess the various risks associated with CDOs and CLOs.
• Master the legal and regulatory framework governing these instruments.
• Evaluate the role and impact of credit rating agencies in the market.
• Interpret deal documentation and prospectus details with precision.
• Analyze historical case studies to understand market performance and challenges.

Course Modules

Module 1: Foundations of CDOs and CLOs

• Defining Collateralized Debt Obligations (CDOs).
• Defining Collateralized Loan Obligations (CLOs).
• The key distinctions between CDOs and CLOs.
• The purpose and economic benefits of these instruments.
• A historical overview and evolution of the market.

Module 2: The CDO/CLO Structure

• Understanding the key components of a deal.
• The role of the Special Purpose Vehicle (SPV).
• The structure of the liability side and tranche hierarchy.
• Different types of collateral pools (e.g., corporate loans, bonds).
• The concepts of overcollateralization and subordination.

Module 3: Collateral Management and Selection

• The role of the collateral manager.
• Investment guidelines and collateral quality tests.
• The process of acquiring and managing the collateral pool.
• Replenishment and substitution of assets.
• Key performance metrics for the collateral manager.

Module 4: Cash Flow Modeling and Tranche Mechanics

• A deep dive into the cash flow waterfall.
• Understanding interest and principal distribution.
• The role of interest rate and basis risk.
• Modeling cash flow for different tranches (e.g., equity, mezzanine, senior).
• The impact of defaults on cash flow.

Module 5: The Role of Credit Rating Agencies

• The methodology used by rating agencies for CDOs/CLOs.
• Modeling default and recovery rates for the collateral pool.
• How credit enhancement impacts tranche ratings.
• The role of rating triggers and their implications.
• A critical analysis of rating agency assumptions.

Module 6: Advanced Valuation and Pricing

• Valuing different tranches of a deal.
• Understanding the complexities of the equity tranche.
• The use of Monte Carlo simulation for valuation.
• Analyzing market spreads and their drivers.
• The impact of liquidity on pricing.

Module 7: Legal and Regulatory Framework

• The key legal documents in a CDO/CLO deal.
• The importance of the Indenture and Offering Circular.
• The impact of regulations like the Dodd-Frank Act.
• Risk retention rules and their effect on deal structure.
• Key legal considerations for investors.

Module 8: Performance Triggers and Tests

• Understanding overcollateralization tests.
• The concept of interest coverage tests.
• The role of cash flow diversion triggers.
• The implications of failing a test.
• The impact of triggers on cash flow to junior tranches.

Module 9: Types of CDOs

• A detailed look at different CDO types.
• The structure and purpose of CDOs of ABS.
• An introduction to synthetic CDOs.
• The role of managed vs. static CDOs.
• Analyzing the risks specific to each type.

Module 10: Types of CLOs

• The structure and purpose of cash flow CLOs.
• Understanding the role of broadly syndicated loans (BSLs).
• The risks and benefits of middle-market CLOs.
• The use of revolving credit facilities in CLOs.
• A deep dive into the collateral characteristics of loans.

Module 11: Hedging and Risk Management

• The use of interest rate swaps to manage risk.
• Hedging against credit risk with Credit Default Swaps (CDS).
• The role of basis swaps in a deal.
• Managing currency and reinvestment risk.
• Developing a comprehensive risk management strategy.

Module 12: Servicing and Trustee Roles

• The responsibilities of the collateral administrator.
• The role of the trustee and the paying agent.
• The importance of reporting and transparency.
• The servicer's role in managing defaults.
• Analyzing servicer reports and data.

Module 13: Investor Perspective and Due Diligence

• How different investors approach CDO/CLO investments.
• Performing due diligence on the collateral manager.
• Analyzing the deal's structure and legal documentation.
• The importance of data verification and reporting.
• Developing an investment thesis for a specific tranche.

Module 14: Analyzing Historical Case Studies

• A deep dive into the 2008 financial crisis and the role of CDOs.
• Analyzing the performance of different deals through market cycles.
• Lessons learned from market downturns.
• The impact of regulatory changes on deal performance.
• A look at recent market trends and innovations.

Module 15: Capstone Project: Deal Analysis and Pitch

• Participants will be assigned a specific CDO or CLO prospectus.
• They will be tasked with building a simplified cash flow model.
• A comprehensive analysis of the deal's structure, collateral, and risks.
• Presenting an investment recommendation for a specific tranche.
• Peer review and expert feedback session.

Training Approach

This course will be delivered by our skilled trainers who have vast knowledge and experience as expert professionals in the fields. The course is taught in English and through a mix of theory, practical activities, group discussion and case studies. Course manuals and additional training materials will be provided to the participants upon completion of the training.

Tailor-Made Course

This course can also be tailor-made to meet organization requirement. For further inquiries, please contact us on: Email: info@skillsforafrica.org, training@skillsforafrica.org  Tel: +254 702 249 449

Training Venue

The training will be held at our Skills for Africa Training Institute Training Centre. We also offer training for a group at requested location all over the world. The course fee covers the course tuition, training materials, two break refreshments, and buffet lunch.

Visa application, travel expenses, airport transfers, dinners, accommodation, insurance, and other personal expenses are catered by the participant

Certification

Participants will be issued with Skills for Africa Training Institute certificate upon completion of this course.

Airport Pickup and Accommodation

Airport pickup and accommodation is arranged upon request. For booking contact our Training Coordinator through Email: info@skillsforafrica.org, training@skillsforafrica.org  Tel: +254 702 249 449

Terms of Payment: Unless otherwise agreed between the two parties’ payment of the course fee should be done 7 working days before commencement of the training.