Investor's Guide to Synthetic CDOs

<p>There are many investment considerations in connection with CDO investments in general, and SCDOs are no different. Yet the emphasis may be different when looking at a synthetic transaction, and we suggest that the following considerations be included in an investor's due-diligence process in addition to their typical CDO due-diligence process:<ul> <li>Reference portfolio: Quality and correlation are key</li> <li>Portfolio management: Static, lightly, or fully</li> <li>Credit event definitions: Capturing the essence of default</li> <li>Loss calculation: Methods differ, but multiple bids are best</li> <li>Settlement procedures: Now or later</li> <li>Discrete defaults: Avoid continuous default assumptions</li> <li>Bifurcated risk: Considering the high-quality assets</li></p>