This illustrates a partially-funded synthetic CDO typical of the failed structure in the subprime meltdown. "Partially-funded" refers to the fact that only a fraction of the reference portfolio is collateralized (e.g., 7% to 15%); the investors purchase securities only on this funded tranche. "Synthetic" refers to the fact that credit risk is transferred not with a sale of loans to the SPE/SPV, but by the purchase of credit protection with credit default swaps (CDS).
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