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Project Finance Collateralised Debt Obligations: an Empirical Analysis of Spread Determinants


  • The authors would like to thank the editor, John Doukas, and two anonymous referees for comments and suggestions on an earlier draft of the paper. The responsibility for the contents remains that of the authors alone. Furthermore, the authors acknowledge the generous financial support provided by the Centre for Applied Research in Finance at Bocconi University. Correspondence: Stefano Gatti.


Credit rating is the most important variable in determining tranche spread at issue on collateralised debt obligations (CDOs) issues backed by project finance (PF) loans. Factors that are important for pricing in the case of corporate bonds, such as market liquidity and weighted average maturity, are also relevant for determining spreads for these securities. Furthermore, the nature of the underlying assets has a substantial impact on CDO pricing: Primary market spread is significantly higher when the underlying PF loans bear a higher level of market risk and when the proportion of projects still under construction in the securitised portfolio is larger.