Credit analysis of structured debt requires a different approach compared to credit analysis of other risky bonds. There are three major factors to consider when evaluating asset-backed securities (ABS):
Covered bonds: Covered bonds are senior debt obligations issued by a financial institution. The unique feature of covered bonds is that they give recourse to the originator/issuer in addition to the predetermined underlying collateral.
When evaluating covered bonds, we should consider both the dual recourse principle as well as the quality of the underlying asset pool.
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