LIPPER
HEDGEWORLD
Calpine
Default Jostles CDO Market
By Christopher Faille, Financial Correspondent
Thursday, December 08, 2005
WILMINGTON, Del. (HedgeWorld.com)—Delaware's
chancery court has given Calpine Corp., San Jose, Calif., until
Jan. 22 to return
about US$313 million in asset sale proceeds to a collateral fund
for the company's secured debt. This is money that, the court
determined, was used improperly to buy generator fuel.
As that caution indicates, Calpine
would be only the latest in a series of shocks to the CDO market.
The series of
shocks
has persuaded Janet Tavakoli, a consultant in structured financial
products, that 2006 may be a bellwether year, when "smarter
firms and former CDO investors will head to a more integrated
approach and a more fundamental approach." The explosion
in CDO use in 2005 has been due largely to the vogue for asset
correlation trades, and that vogue is likely over. The efforts
to calculate correlations from price data has fallen apart
in moving markets, especially in the presence of hidden liabilities,
such as General Motors' notorious health benefit and pension
obligations.
In 2006, then, traders will take
a broader view of the markets, a view "that encompasses equity
and debt instruments along with credit derivatives. Equity markets
will become more involved
as the emphasis shifts from fixed income," Ms.
Tavakoli said.
END
OF EXCERPT
Janet Tavakoli is the president
of Tavakoli Structured Finance, a Chicago-based firm that provides
consulting to financial institutions and institutional investors.
Ms. Tavakoli has more than 20 years of experience in senior
investment banking positions, trading, structuring and marketing
structured financial products. She is a former adjunct professor
of derivatives at the University of Chicago's Graduate School
of Business. She is the author of: Credit
Derivatives & Synthetic Structures (John Wiley & Sons,
1998, 2001), Structured
Finance & Collateralized Debt Obligations (John
Wiley & Sons, 2008).
Janet Tavakoli's
book on the global financial meltdown is Dear
Mr. Buffett: What An Investor Learns 1,269 Miles From Wall
Street (Wiley 2009).
Clients of Tavakoli Structured Finance have the benefit of proprietary consultation,
which is not available in any other paid or public forum. Clients also commission
proprietary research and analysis.
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