A tranche of a collateralized debt obligation (CDO) for which terms and features can be customized. The CDO can also be based on a basket of names (obligations). It is a synthetic structure that consists of a single tranche. It is simpler than a standard synthetic tranche and can be customized to an investor’s preferences. With a bespoke tranche, only one tranche of the structure, usually a mezzanine tranche, is sold to investors, while the arranger becomes the direct counterparty to the transaction since the structure involves no special purpose vehicle (SPV). This allows the seller to meet investors’ needs in terms of customization and cost considerations. Unlike conventional CDOs, bespoke tranches don’t requires that all the different classes of tranches (equity, mezzanine, senior) be sold for a transaction to complete. This instrument was introduced in 2003 a a more flexible alternative to conventional CDOs.
A bespoke CDO tranche is also known as a bespoke CDO, a customized monotranche, a single-tranche CDO or for short as an STCDO.
