Standard Forms / Documentation / Guidelines
Market Practice Guidelines
For the Standardized CDO Monthly Trustee Report
The Bond Market Association is recommending that participants in the CDO market consider using the attached standardized template when creating CDO monthly trustee reports. Doing so will help to improve the readability of such reports by standardizing their organization and identifying a basic, minimum level of content. Widespread adoption of the template will allow trustee report users to find the same information in the same location within every trustee report issued.
A. Introduction
Set forth below are The Bond Market Association's ("Association") recommended voluntary practice guidelines ("Guidelines") for the use of the attached Standardized CDO Monthly Trustee Report ("Report"). The Report was developed by the Association under the guidance of its CDO Committee. The Committee, made up of senior representatives of Association members who are active in the CDO market, was developed in late 2002 to identify and work on issues that impact that market. The Report was made available for public comment in early 2004 and is now available in its final version on the Association's website.
B. Guidelines
1. Delivery Mechanism
Reports should be created in an accessible format that allows the user to read, search and sort the tables (i.e. Microsoft Excel) and should be delivered or made available electronically (i.e. e-mail or download), preferably at the option of the user. The Report should not be put into a portable document format that would limit its readability.
2. Components of the Report
The following sections are provided in the template as a guideline for the organization of the minimum, basic information to be included in trustee reports. It should be noted that this list is not conclusive. Additional detail beyond the basic content outlined in the Report may be included, and additional sections may be added to the end of the report as necessary.
2.1. Section 1: Deal Dates and Key Contacts
This section provides all of the important identifying information for the deal including contact information for the trustee, the collateral manager and, if applicable, the appropriate rating agencies.
2.2. Section 2: Table of Contents
The table of contents provides a listing with page numbers of the different sections included in the report.
2.3. Section 3: Summary Statistics
This section includes an overview of the results of the coverage and collateral quality tests, the asset positions, principal asset balances and the collateral ratings statistics.
2.4. Section 4: Structure - Ratings - Payment History
This section includes a breakdown by class of the capital structure and historical records of both rating agency actions and principal and interest payments.
2.5. Section 5: Collateral Details
This section provides details on the portfolio's underlying collateral with all of the securities listed by security name.
2.6. Section 6: Collateral Details by Issuer
This section provides details on the portfolio's underlying collateral with the securities grouped by issuer name. Following the current balance of each security, the percentage of the total deal that the security comprises is also provided. At the end of each issuer subsection there is a subtotal that shows the percentage of the collateral provided by that issuer. Brief summary statistics are provided at the beginning of the section.
2.7. Section 7: Average Life Details
This section shows the computation of weighted life and average life for each of the underlying securities.
2.8. Section 8: Current Payment Period: Purchase/Sale Activity
This section provides chronological records of collateral that was sold, purchased, reduced or exchanged during the current period.
2.9. Section 9: Cumulative: Purchase/Sale Activity
This section provides historical records of collateral that was sold, purchased or that defaulted in chronological order from the beginning of the deal. A subtotal of activity in the last 12 months is provided for each table.
2.10. Section 10: Coverage Tests
This section includes detailed outlines of the overcollateralization ratio tests and interest rate coverage tests for the deal.
2.11. Section 11: Defaulted Securities
This section provides a list of all of the securities that defaulted while in the portfolio. The market price and the recovery rate are also both included for each defaulted security in the list.
2.12. Section 12: Triple-C and Below or Double-B and Below
This section provides a list of lower rated securities in the portfolio that are still performing. In order isolate performing from non-performing securities, currently defaulted securities are not included here.
2.13. Section 13: Upgrade and Downgrade Watch
This section includes lists of those securities that are on upgrade watch and those that are on downgrade watch.
2.14. Section 14: Collateral Quality Tests
This section includes details regarding the specific collateral quality tests used for the collateral in the portfolio.
2.15. Section 15: Industry Classifications
This section provides a comprehensive list indicating the rating agency groups into which each security falls. This section also includes a breakdown for each rating agency's classification system of the percentage of assets in the portfolio that fall into each industry group.
2.16. Sections 16 and Up: Additional Information
Any additional information desired may be included in additional sections added to the end of the report.
C. Discussion
The purpose of the Report is to provide a standardized format for monthly CDO trustee reports that can be easily read, searched and sorted. With a standardized report, the same information categories will always be included in the same location (i.e. Rating History is always included in the "Structure-Ratings-Payment History" section). Widespread adoption of this standardized format, therefore, would allow the user to quickly and efficiently find information in and reference the report as necessary. The end result is a much more manageable and functional trustee report.
Please note, however, that these Guidelines and the Report to which they refer are recommendations only. They are intended to promote the smooth functioning of the secondary market for CDO securities. The Report is not intended to restrict or limit in any way the information that may be included in monthly trustee reports. It is merely a template for how and where to organize information within the report. Additional detail beyond the basic content outlined in the Report may be included, and additional sections may be added to the end of the Report as necessary.
As with other Association guidelines, these proposed Guidelines and Report are merely recommended, voluntary standards. The Association recognizes, however, that many of its guidelines are widely observed, also on a voluntary basis, by a variety of other market participants. For that reason, consistent with its approach to other standard-setting initiatives, the Association has sought input from other industry participants.
In order to ensure that the Report is effective, the Association intends to actively reassess the accurateness and appropriateness of its format and of these Guidelines and revise both accordingly when necessary.
D. General Applicability
Members and other interested parties should note that these Guidelines and the accompanying template for the Report are specifically set forth for the creation of CDO monthly trustee reports. They are proprietary to the Association, which grants you the royalty-free right to use them. They are, however, only applicable to trustee reports for CDO securities.