Leave a Comment:
1 comment
For those who did their due dilligence before investing, you would have spotted that Lehman’s credit rating is actually lower than than the Reference Entities during the offer period. Lehman is rated A+ while the RE’s are mostly AA. This means that the reference entities are more stable than Lehman. Makes you wonder why they need credit protection from these while they are more risky.
Well that’s why they made an SPV. The SPV should theoretically have “better” credit rating because it’s specially made to support the structure and assets kept separate from the parent (but the SPV and the notes remain unrated). Failure of the swap counterparty will still enable them to pay something to the investors. But most SPV’s still fail when their parents fail because they’re not really separate entities in the operational sense.
I kinda think the public is not ready for these credit derivatives.
Reply