Junior investor launches legal fight for cash from liquidated CDO

By Mike Peterson

A large investor in trust preferred CDOs has launched a legal bid to recoup some $5 million from a CDO that was recently liquidated

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TAGS: Law suits

Comment by: Peter Jasko. Posted 10 years ago [2014-01-09 15:23:27]

It's not maths at all but a docs drafting problem. The formulas for the cure in a cash CDO are different for the interest and principal waterfalls because the cure in the principal waterfall reduces principal collections which are assets. In the "Annex A" forming the dispute, these two formulas are incorrectly labelled Senior and Subrodinate [sic] OC cures, rather than interest and principal waterfall cures. Given the problem only appears on one place, is correctly stated in about 6 other places and the problem wording is contrary to market practice, it should be easy to attribute it as "manifest error".

Comment by: Anonymous. Posted 10 years ago [2014-01-07 01:50:54]

Interesting dispute - really it's a math problem. The quants who build waterfall models have this same problem as the lawyers drafting the waterfall language. The challenge is that waterfalls are non-linear. There DO EXIST correct ways to build the models and write the language, but you've got to get the non-linear algebra right.