Collateralized loan obligation
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Related to Collateralized loan obligation: Collateralized debt obligation
Collateralized loan obligation (CLO)
A security backed by a pool of commercial or personal loans , structured so that there are several classes of bondholders with varying maturities, called tranches. Similar in structure to Collateralized Mortgage Obligations.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.
Collateralized Loan Obligation
An asset-backed security backed by the receivables on loans. Banks package and sell their receivables on loans to investors in order to reduce the risk coming from loan defaults. Returns on CLOs are paid in tranches; that is, the individual loans backing a CLO have different maturities, and investors are paid out as each matures. Banks offer higher interest rates to investors willing to buy CLOs backed by higher-risk loans. From a bank's perspective, in addition to reducing risk, CLOs also reduce their capital requirements by raising funds through the issue of CLOs. See also: Collateralized mortgage obligation.
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