Conventional CDO Versus Synthetic

Portfolio 1,000
Return 2.30%
Conventional Synthetic
Tranche Rating Notional Percentage Spread Notional
SS - 750
A AAA 770 77.0% 0.45% 110
B AA 140 14.0% 1.00% 50
C BBB 50 5.0% 3.00% 50

Total 960 0.64% 960

Portfolio Income 23,000,000

Portfolio Funding Cost 6,110,400
Expenses and Losses 12,000,000
Difference 4,889,600

Equity 40
Equity Spread 12.22%
Percentage Spread
75.0% 0.15%
11.0% 0.45%
5.0% 1.00%
5.0% 3.00%

0.362%

23,000,000
3,475,200
12,000,000
7,524,800

18.81%
 CDO Overcollateralisation Effects

Start of Deal After Loss

Par Value Required O/C Actual O/C Par Value

A AAA 70 125% 143% 70

B BBB 16 108% 116% 16
C B 4 100% 111% 4
Equity NR 10 - 2
Total 100 Total 92
8 Pay Down Class A
Actual O/C Par Value Actual O/C

131% 64 134%
107% 16 108%
102% 4 102%
2
86
Standard & Poor's Rated Overcollateralisation (ROC) Benchmark
Assets :
Senior & Subordinated Loans 300
Minimum Weighted Recovery 35%
AAA Default Rate (Scenario) 36%
BBB Default Rate (Scenario) 24%

Liabilities :
Class A (AAA) 240
Class B (BBB) 36
Prefs (U/R) 24
Total 300

ROC Calculation: AAA BBB

Current Collateral & Cash Balance 300 300
Plus Expected Recoveries on Defaulted Assets 0 0
Minus Expected Gross Defaults (EGD) 108 72
Plus Recoveries on EGD 37.8 25.2
Plus Expected Net Excess Spread 33 29
(1) Potential Total Cash Flow 262.8 282.2
(2) Supported Liabilities (A and A+B) 240 276
ROC (1/2) 109.5% 102.2%
Conventional O/C 125% 108.7%
So, ROC takes into account defaults (given a rating scenario), recoveries, and excess spread.
Market Value CDO Advance Rates, Overcollateralisation and Minim

Tranches :
Notes Rating Amount %
Senior Facility AA 400 40%
Senior Notes AA 200 20%
Senior Subordinated A 120 12%
Subordinated BBB 80 8%
Equity NR 200 20%
Total 1000 100%

AA Tranche
MV % Advance Rate
Bank loans MV >90% 180 18% 90%
Investment Grade Corporate Bonds 70 7% 88%
Bank Loans BB- MV 70-80% 500 50% 75%
Bank loans CCC+ 100 10% 60%
Equity 150 15% 50%
Total 1000 100%
Total Senior Debt Face Value
Borrowing Amount Surplus
Overcollateralisation

A Tranche
MV % Advance Rate
Bank loans MV >90% 180 18% 91%
Investment Grade Corporate Bonds 70 7% 91%
Bank Loans BB- MV 70-80% 500 50% 85%
Bank loans CCC+ 100 10% 72%
Equity 150 15% 71%
Total 1000 100%
Total Senior Debt Plus Senior Sub.
Borrowing Amount Surplus
Overcollateralisation

BBB Tranche
MV % Advance Rate
Bank loans MV >90% 180 18% 93%
Investment Grade Corporate Bonds 70 7% 94%
Bank Loans BB- MV 70-80% 500 50% 87%
Bank loans CCC+ 100 10% 79%
Equity 150 15% 78%
Total 1000 100%
Total Debt
Borrowing Amount Surplus
Overcollateralisation
eralisation and Minimum Net Worth

Advance Rates :
AAA AA A
Cash 100% 100% 100%
Govt Secs 2-10 Year 95% 95% 95%
Bank loans MV >90% 86% 90% 91%
Investment Grade Corp Bonds. 85% 88% 91%
Bank Loans MV 80-90% BB- 73% 81% 87%
Bank Loans MV 70-80% BB- 69% 75% 85%
Bank Loans CCC+ 52% 60% 72%
Investment Grade CB's 60% 70% 80%
Non investment Grade CB's 52% 64% 76%
Equity 40% 50% 71%

AA Minimum Net Worth Test

Advance Amount Bank loans MV >90% 180
162 Investment Grade Corporate Bonds 70
61.6 Bank Loans BB- MV 70-80% 500
375 Bank loans CCC+ 100
60 Equity 150
75 Total 1000
733.6 Minus Debt 800
600 Net Worth 200
133.6 Minimum Net Worth (60%) 120
122% Is Test Met ? Yes

A Minimum Net Worth Test

Advance Amount Bank loans MV >90% 180
163.8 Investment Grade Corporate Bonds 70
63.7 Bank Loans BB- MV 70-80% 500
425 Bank loans CCC+ 100
72 Equity 150
106.5 Total 1000
831 Minus Debt 800
720 Net Worth 200
111 Minimum Net Worth (45%) 90
115% Is Test Met ? Yes

BBB Minimum Net Worth Test

Advance Amount Bank loans MV >90% 180
167.4 Investment Grade Corporate Bonds 70
65.8 Bank Loans BB- MV 70-80% 500
435 Bank loans CCC+ 100
79 Equity 150
117 Total 1000
864.2 Minus Debt 800
800.00 Net Worth 200
64.2 Minimum Net Worth (30%) 60
108% Is Test Met ? Yes
 BBB BB B
100% 100% 100%
95% 95% 100%
93% 94% 96%
94% 94% 96%
90% 92% 92%
87% 89% 89%
79% 85% 82%
85% 80% 90%
81% 78% 88%
78% 78% 85%
This spreadsheet is for internal use only by Deutsche Bank Global Markets employees. The material (including formulae) is provide
under no circumstances be used for client pricing. Examples, case studies, exercises and solutions may use simplifying assumpti
from Deutsche Bank proprietary models actually used. The publication is provided to you solely for information purposes and is n
purchase or sale of any financial instrument or product. The information contained herein has been obtained from sources believe
and its accuracy cannot be guaranteed.
aterial (including formulae) is provided for education purposes only and should
utions may use simplifying assumptions that do not apply in practice, and may differ
ly for information purposes and is not intended as an offer or solicitation for the
been obtained from sources believed to be reliable, but is not necessarily complete