The collateralized debt obligation (CDO) may not have a great reputation, but it has an important strength: versatility. Unlike a conduit, which is designed to securitize loans with standard terms, a CDO lends itself to securitizing assets that are dissimilar. CDOs can also give managers discretion to move assets in and out of the pool of collateral — a handy feature when dealing with riskier loans.
Now that lenders are moving from making first-lien commercial mortgages to originating mezzanine and other kinds of unsecured debt, it’s only natural that they would look to CDOs to securitize these assets. In this month’s cover story, John Hintze looks at two recent deals from Redwood Trust and Arbor Realty Trust that could serve as a template for many others.