Investors, the Securitization of Bad Loans, and the Probability of Default
As reported in a New York Times article, Citibank, a major lender to Enron, apparently protected itself from a significant portion of its Enron’s credit risk by passing it on to investors in credit-linked bonds. What the article did not mention, however, was that Citibank accomplished this risk transfer through an innovative transaction that combined credit derivatives and insurance with traditional securitization.1
KeywordsCapital Market Institutional Investor Credit Risk Credit Default Swap Trade Credit
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