Credit derivatives product company explained

A Credit Derivatives Product Company (CDPC) is a business focused on trading in credit default swaps contracts. CDPC typically sells insurance against someone failing to pay back a loan ('defaulting'). A CDPC is usually highly leveraged, meaning that if even a portion of its held credit default portfolio were to be 'triggered' at once, the CDPC would not have the capital to fully pay out the resulting insurance claims.

The CDPC business model is dependent on a triple-A rating from a credit rating agency[1] and must trade within closely defined limitations to be allowed to maintain their credit rating.[2]

History

The first CDPC was Primus Financial Products, launched in 2002.[1] In October 2008 Fitch Ratings withdrew its ratings on all five CDPCs that it had previously rated, citing in part "the uncertain business prospects for CDPCs".[3]

List of CDPCs

Name Established Sponsors, Investors, related parties CEO Refs
Primus Financial Products 2002 Tom Jasper
Aladdin Financial Products 2007 Aladdin Capital Holdings Isaac Efrat
Athilon Structured Investment Advisors 2004 Dec Lightyear Capital Pat Gonzales
Cournot Financial Products Morgan Stanley Frank Iacono[4]
Invicta Capital 2007 Jan Steve Kahn[5] [6]
Quadrant Structured Credit Products 2007 Oct Gene Park [7]
Pallium Investment Management Bank of Montreal, others
NewLands 2007/2008 DeutscheBank, AXA
Structured Credit Holdings 2006 June [8] [9]
Bear Stearns Asset Management
Channel Capital Early 2007 Calyon, LBBW, Principia Partners (IT)[10]
Koch Financial Products
Satago Financial Products
Theta Corporation December 2004[11] Gordian Knot Limited [12] [13]
Deerfield Capital Management
Harbor Road Financial Products [14]

See also

Notes and References

  1. Web site: LEARNING CURVE: Credit Derivative Product Companies – A Primer . pdf . 2008-01-28 . Edmund Parker, Melanie Barrow . 2010-05-03 . https://web.archive.org/web/20110723201551/http://www.mayerbrown.com/publications/article.asp?id=4177&nid=6 . 2011-07-23 . dead . . For basic 'insurance' analogy and 'leverage' explanation, please see Wikipedia articles on credit default swap and leverage.
  2. Web site: CDPCs strive to reach the tipping point . https://web.archive.org/web/20110707133556/http://www.americansecuritization.com/uploadedFiles/CDPCs.pdf . dead . 2011-07-07 . Emily Barrett . 2010-05-03 . americansecuritization.com .
  3. http://www.pr-inside.com/fitch-withdraws-cdpc-ratings-r867691.htm Fitch Withdraws CDPC Ratings
  4. http://sec.edgar-online.com/morgan-stanley/10-k-annual-report/2008/01/29/Section56.aspx Morgan Stanley 10-k SEC filing
  5. http://www.babsoncapital.com/News/article.aspx?ContentID=4eadd0cc20175110VgnVCM100000467406aaRCRD Babson Capital named best CDO manager* by Euromoney
  6. http://www.invictafinancial.com/about/ Invicta Financial Group: About Us
  7. Quadrant CDPC Plots Wide Remit, Derivatives Week, Oct 22 2007
  8. https://www.nytimes.com/2007/09/06/business/worldbusiness/06credit.html Troubled Irish Company Allowed to Revamp
  9. https://web.archive.org/web/20110724060559/http://www.securitization.net/news/article.asp?id=344&aid=5476 Radian team quit for start-up
  10. Channel Capital Rolls Out Into Growing CDPC Arena, Derivatives Week, March 26, 2007
  11. Web site: Moody's assigns definitive counterparty rating of Theta Corporation and definitive ratings to its MTN and Commercial Paper programs . 20 December 2004 . Moodys.com.
  12. Web site: Gordian Knot WebSite. gordian.co.uk.
  13. Web site: Moody's downgrades counterparty rating of Theta Corporation . 17 March 2009 . Moodys.com.
  14. http://www.structuredcreditinvestor.com/story.asp?PubID=250&ISS=22163&SID=16546&article=Tricadia%20preps%20CDPC Tricadia Preps CDPC

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