I follow AFN and in a number of their CDOs they have an issue with phantom income. This is where the CDO is contractually obigated to redirect the excess cashflow that would normally be owned by the equity traunch to the AAA traunch because the CDO has failed one or more of their tests.
Does this situation exist with any of RAS's CDOs, and if not why not?
RAS has minimal unrestricted cash relative to its size and it would appear that if it had a phantom income problem the cash would quickly get eaten up.
I don't know the extent to which real "phantom income" is in play, but there certainly has been redirection of income to upper tranches in the older Tabernas due to collateralization issues and losses up to Taberna VIII. Taberna VIII cured last quarter. I have no idea when other tranches will cure. RAS really hasn't addressed the issue that I've noticed.