Finance:Credit Derivatives Product Company

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A Credit Derivatives Product Company, or CDPC, is a business focused on trading in credit default swaps contracts. That is, a CDPC typically sells insurance against someone failing to pay back a loan ('defaulting'). A CDPC is usually highly leveraged, meaning that if even a portion of its held credit default portfolio were to be 'triggered' at once, the CDPC would not have the capital to fully pay out the resulting insurance claims. The CDPC business model is dependent on a triple-A rating from a credit rating agency[1] and must trade within closely defined limitations to be allowed to maintain their credit rating.[2]

History

The first CDPC was Primus Financial Products, launched in 2002.[1] In October 2008 Fitch Ratings withdrew its ratings on all five CDPCs that it had previously rated, citing in part "the uncertain business prospects for CDPCs".[3]

List of CDPCs

Name Date Sponsors, Investors, related parties CEO Refs
Primus Financial Products 2002 Tom Jasper [1]
Aladdin Financial Products 2007 Aladdin Capital Holdings Isaac Efrat [3]
Athilon Structured Investment Advisors 2004 Dec Lightyear Capital Pat Gonzales [1][2][3]
Cournot Financial Products Morgan Stanley Frank Iacono [3][4]
Invicta Capital 2007 Jan Babson Capital, MassMutual Steve Kahn [3][5][6]
Quadrant Structured Credit Products 2007 Oct Magnetar Capital, Lehman Brothers Gene Park [3][7]
Pallium Investment Management Bank of Montreal, others [2]
NewLands 2007/2008 DeutscheBank, AXA [2]
Structured Credit Holdings 2006 June Aquiline, CalPERS, CDPQ, Calyon, Triad, ex-employees of Radian Asset Assurance [8][9]
Bear Stearns Asset Management [2]
Channel Capital Early 2007 Calyon, LBBW, Principia Partners (IT) [10]
Koch Financial Products
Satago Financial Products
Theta Corporation December 2004[11] Gordian Knot Limited [12] [13]
Deerfield Capital Management
Harbor Road Financial Products Tricadia Capital [14]

See also

  • Monoline insurers (also dependent on a AAA rating, also sold credit default swaps)

Notes

  1. ↑ 1.0 1.1 1.2 1.3 Edmund Parker, Melanie Barrow (2008-01-28). "LEARNING CURVE: Credit Derivative Product Companies – A Primer" (pdf). http://www.mayerbrown.com/publications/article.asp?id=4177&nid=6. Retrieved 2010-05-03. . For basic 'insurance' analogy and 'leverage' explanation, please see Wikipedia articles on credit default swap and leverage.
  2. ↑ 2.0 2.1 2.2 2.3 2.4 Emily Barrett. "CDPCs strive to reach the tipping point" (pdf). americansecuritization.com. http://www.americansecuritization.com/uploadedFiles/CDPCs.pdf. Retrieved 2010-05-03. 
  3. ↑ 3.0 3.1 3.2 3.3 3.4 3.5 Fitch Withdraws CDPC Ratings Business Wire 2008-10-17, accessed 2010-05-03
  4. ↑ Morgan Stanley 10-k SEC filing, Subsidiaries, 2008-01-29, accessed 2010-05-03
  5. ↑ Babson Capital named best CDO manager* by Euromoney 2007-06-08, babsoncapital.com, accessed 2010-05-03
  6. ↑ Invicta Financial Group: About Us , invictafinancial.com, accessed 2010-05-03
  7. ↑ Quadrant CDPC Plots Wide Remit, Derivatives Week, Oct 22 2007
  8. ↑ Troubled Irish Company Allowed to Revamp Eamon Quinn, NY Times, September 6, 2007, accessed 2010-05-03
  9. ↑ Radian team quit for start-up , Creditflux Ltd. (April 6, 2006), accessed 2010-05-03 via securitization.net
  10. ↑ Channel Capital Rolls Out Into Growing CDPC Arena, Derivatives Week, March 26, 2007
  11. ↑ "Moody's assigns definitive counterparty rating of Theta Corporation and definitive ratings to its MTN and Commercial Paper programs". Moodys.com. 20 December 2004. https://www.moodys.com/research/MOODYS-ASSIGNS-DEFINITIVE-COUNTERPARTY-RATING-TO-THETA-CORPORATION-AND-DEFINITIVE--PR_90791. 
  12. ↑ "Gordian Knot WebSite". gordian.co.uk. http://www.gordian.co.uk/. 
  13. ↑ "Moody's downgrades counterparty rating of Theta Corporation". Moodys.com. 17 March 2009. https://www.moodys.com/research/Moodys-downgrades-counterparty-rating-of-Theta-Corporation--PR_255983. 
  14. ↑ Tricadia Preps CDPC 2008 4 9, Corrine Smith, Structured Credit Investor, accessed 2010-05-03





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