How Collateralized Loan Obligations Work?
A Collateralized Loan Obligation (Clo) Is a Single Security Backed by a Pool of Debt. the Process of Pooling Assets into a Marketable Security Is Called...
A collateralized loan obligation (CLO) is a single security backed by a pool of debt. The process of pooling assets into a marketable security is called securitization. ... With a CLO, the investor receives scheduled debt payments from the underlying loans, assuming most of the risk in the event that borrowers default.
How do CLO's make money?
With every dollar of senior debt it pays off, the CLO's weighted average interest cost increases, reducing its asset-liability spread and therefore its income.
What do CLO's invest in?
Investment options range from AAA-rated debt tranches to non-rated equity. Banks, asset managers, insurance companies, pension funds, mutual funds, hedge funds and high net worth individuals are active investors in the CLO market and are attracted to the variety of risk/return options.
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