What is a CLO & how does it work?

With a CLO, the investor receives scheduled debt payments from the underlying loans, assuming most of the risk if borrowers default. A CLO is a bundle of loans that are ranked below investment grade. They are usually first-lien bank loans to businesses that are initially sold to a CLO manager and consolidated into bundles of 150 to 250 loans.

What is a collateralized loan obligation (CLO)?

(August 2022) ( Learn how and when to remove this template message) Collateralized loan obligations ( CLOs) are a form of securitization where payments from multiple middle sized and large business loans are pooled together and passed on to different classes of owners in various tranches. A CLO is a type of collateralized debt obligation .

What is the difference between a CLO equity investor and a debt investor?

Economically, the CLO equity investor is the owner of the pool of loans and the CLO debt investors provide term financing to acquire the pool of loans. A portfolio of loans act as the collateral supporting a CLO.

When does a CLO transaction end?

The CLO transaction may terminate when all of the securities have been repaid or when the underlying loans have been paid off or sold. At this point, any special purpose vehicles are dissolved and any remaining assets are distributed to the investors.