Introduction to Securitization

RAMP-UP PERIOD

The ramp-up period is the period over which the CDO manager will be allowed to invest the proceeds of the issuance into assets as per the objectives of the CDO. While there is no need for a ramp-up period for balance sheet transactions, in arbitrage transactions, the CDO manager would need some time to line up the assets.

Ramp periods may be different for different transactions, allowing the CDO manager the right to select assets over a period of time. In market value deals, the ramp-up period can be typically between six months to one year; in some emerging market CDOs a ramp-up period of as long as two years is allowed. A longer ramp-up period means more risk and, therefore, rating agencies assign a lower rating for a transaction if the ramp-up period is long. The reason is that during the ramp-up period, the cash raised will be invested in liquid, permissible investments.

In addition to the ramp-up period, the CDO has a typical warehousing period, meaning a period prior to the issuance of the securities when the sponsor starts collecting the collateral. Reinvestment and amortization periods are the same as for traditional securitizations.