AN UNEXPECTED STRESS TEST FOR SECURITIZATION-BASED SECURITIES: IMPACT OF COVID-19 ON COLLATERALIZED LOAN OBLIGATIONS

Abstract

The dissertation begins with a description of the securitisation process and the subjects involved. In the first part we present some introductory notions about the functioning of the products obtained by the securitization process. In this introductory section, special attention will be paid to the purposes of securitisation transactions. The aim of the second part of the thesis is to analyse CDOs, which are financial instruments deriving from the securitisation process. Due to their high leverage and complexity, CDOs are among the main culprits of the previous crisis. The next step is to describe the functioning of the CDOs and their risk and performance features. In this part of the thesis, we will present some models used for the evaluation of CDOs and the measurement of their risk. Subsequently, a class of financial products belonging to the CDO family will be analysed: the CLOs. In particular, we will try to track the evolution of the relationship between CLOs and their underlying assets during the pandemic. Since leveraged loans are the main underlying of a CLO, we will continue with the description of these products and their origination process. During the preparation of the thesis, we will analyze data from a variety of sources, including the Bloomberg platform, academic articles, and periodic reports of the CRA, as well as studies conducted by regulators to tackle the outbreak of a new crisis.