Meaning of CDO-cubed | Babel Free

Definitions

A type of CDO (collateralized debt obligation) that invests in CDO-squareds.

Examples

“Given the number⟳ of CDO Squared transactions in the marketplace, and the continued narrowing of corporate spreads, the emergence of CDO Cubed could be regarded as almost inevitable.”

“But what if you can't sell⟳ all the bottom tranches of the CDO-squared securities? You guessed it. You form⟳ another pool of those untouchables—called a CDO cubed—and tranche away again.”

“A CDO squared is a CDO that only uses other CDOs as collateral. The CDO cubed is a special purpose vehicle with securitization payments in the form⟳ of tranches. A CDO cubed is backed by CDO squared tranches, allowing the banks to resell the credit risk⟳ they had taken once again by repackaging their CDO-squared.”

CEFR level