CDO


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CDO

Collateralized Debt Obligation

An asset-backed security backed by the receivables on loans, bonds, or other debt. Banks package and sell their receivables on debt to investors in order to reduce the risk of loss due to default. Returns on CDOs are paid in tranches; that is, the individual loans backing each CDO have different levels of risk, and investors are paid out according to the level of risk they have acquired. Banks offer higher interest rates to investors willing to buy CDOs backed by higher-risk loans. From a bank's perspective, in addition to reducing risk, CDOs also reduce their capital requirements because they can raise funds through the issue of CDOs. While, theoretically, CDOs can be backed by mortgages, one usually refers to these as collateralized mortgage obligations.

CDO

References in periodicals archive ?
Not only is this consistent with our strategy of financing all of our business lines through match funded structures, but CDO VI, like CDO IV, has the added benefit of significant re-investment flexibility for the next five years and a structure that will allow us to continue to select the portion of the capital structure that provides the most attractive risk/return profile.
Our consistent issuance in the CDO market, and the strong performance of the underlying collateral of our transactions, has resulted in the ability to significantly decrease the weighted average interest rate on CDOs of this type from approximately LIBOR plus 0.