Please note that the content of this book primarily consists of articles available from Wikipedia or other free sources online. Single-tranche CDO is a natural extension of full capital structure synthetic CDO deals, invented by Stefano Italiani. These are bespoke transactions where the bank and the investor work closely to achieve a specific target. In a bespoke transaction, the investor has 100% say on the rating of the tranche, maturity of the transaction, coupon type (fixed or floating), subordination level, type of collateral used etc. Typically the objective is to create a debt instrument where the return is significantly higher than comparably rated bonds. This is also viewed as rating arbitrage, hence these CDOs are also called arbitrage CDOs. In a nutshell, a single-tranche CDO is a CDO where the issuing bank effectively holds the rest of the capital structure and does not place it.
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