The temptation for cashflow CDO collateral managers to engage in abusive par-building trades is heightened, Standard & Poor's said last week as it released a study/commentary on the trend.

In its most talked about form, a par-building trade happens when a collateral manager purchases a discounted asset and marks it to par, improving the CDOs overcollateralization ratios. Note holders and rating analysts associate abusive par-building trades with managers who favor their equity investors - as gaming the O/C levels allows them to preserve the cash flow, mitigating the debt holder protections built into the structure.

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