CFA Level I · CFA Level I Exam · Asset-Backed Security (ABS) Instrument and Market Features
A CDO's collateral manager is most likely to be able to actively buy and sell assets in the collateral pool during the CDO's:
The manager can actively trade and reinvest during the reinvestment period, using principal proceeds to buy new collateral within the structure's tests. Once this ends, the structure amortizes and principal is passed to investors in order of seniority instead of being reinvested.
- Aamortization period
- Breinvestment periodCorrect
- Ccall protection period only
Explanation
During the reinvestment period of a CLO or CDO, principal proceeds are reinvested in new collateral and the manager may trade the portfolio within covenant limits. After it ends, principal payments are used to repay the tranches rather than to buy new assets.
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