a1 [email protected], University of Konstanz, Department of Economics, POB 147, D-78457 Konstanz, Germany
a2 [email protected], Landesbank Baden-Württemberg, Am Hauptbahnhof 2, D-70173 Stuttgart, Germany
a3 [email protected], Axpo Holding AG, Parkstrasse 23, 5401 Baden, Switzerland
This paper analyzes the loss allocation to first, second, and third loss positions in European collateralized debt obligation transactions. The quality of the underlying asset pool plays a predominant role for the loss allocation. A lower asset pool quality induces the originator to take a higher first loss position, but, in a synthetic transaction, a smaller third loss position. The share of expected default losses, borne by the first loss position, is largely independent of asset pool quality but lower in securitizations of corporate loans than in those of corporate bonds. Originators with a good rating and low Tobin’s Q prefer synthetic transactions.