PreTSL is the brand name given to a type of Collateralized debt obligation (CDO) created by the investment banking firm Keefe, Bruyette and Woods, Inc. (ticker symbol KBW). PreTSL is an acronym for Preferred Term Securities, Ltd.

PreTSLs are similar to other CDOs in that they gather together different bonds into one new bond. PreTSLs are unique because they didn't gather mortgages like other CDOs did. They gathered "preferred trust securities" sold by small, local banks and other debt sold by insurance companies and Real Estate Investment Trusts (REITs).

KBW issued 28 different PretTSLs between 2000 and 2008, labeling each issue with consecutive Roman numerals. PreTSL I was issued 09/07/2000 and PreTSL XXIII was issued 11/08/2007.


Like other CDOs, each PreTSL was sliced into different sections, or "tranches" and those sections were sold to different investors. Think of each PreTSL as a giant cube of particle board. The cube was sliced into planks, and the planks were sold off to different people. Some planks were cut very thick and offered reasonable safety to investors who used them to build a portfolio. But other particle board planks were sliced very thin. Portfolios built with some of these thin, risky PreTSL planks suffered serious structural problems. Investors lost money on many of the riskier PreTSL planks, including KBW itself:




PreTSLs were sold directly to institutions and individual investors. A robust secondary market never developed, leaving KBW to act as the structuring and placement agent, broker and market maker for all PreTSLs.


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