What Is a 'CLO'?

Collateralized loan obligations (CLO) are corporate loans with low credit ratings or leveraged buyouts made by private equity firms. ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

Term of the Day | Words to Know Collateralized Loan Obligation Collateralized loan obligations (CLO) are corporate loans with low credit ratings or loans taken out by private equity firms to conduct leveraged buyouts. A collateralized loan obligation is similar to a collateralized mortgage obligation (CMO), except that the underlying debt is of a different type and character—a company loan instead of a mortgage. With a CLO, the investor receives scheduled debt payments from the underlying loans, assuming most of the risk in the event that borrowers default. In exchange for taking on the default risk, the investor is offered greater diversity and the potential for higher-than-average returns. A default is when a borrower fails to make payments on a loan or mortgage for an extended period of time. Read More » Related to "Collateralized Loan Obligation" How Are Leveraged Buyouts Financed? Understand the basics of a leveraged buyout (LBO), who is involved in executing the transaction and some of the various ways to finance an LBO. Read More » 10 Most Famous Leveraged Buyouts Learn about 10 of the boldest leveraged buyouts in history. See how they became famous for either making, or losing, billions. Read More » SPONSORED BY INVESCO The Complete Guide to ETFs ETFs are becoming increasingly popular and soaring to new heights among investors. Invesco's insights can help you determine if these investment vehicles are right for you. Learn More » CMO vs CDO: Same Outside, Different Inside The concept of collateralizing and structured financing predates the market for collateralized mortgage obligations and collateralized debt obligations. Read More » Related Definitions Leveraged Buyout A leveraged buyout is the acquisition of another company using a significant amount of borrowed money (bonds or loans) to meet the cost of acquisition. Read More » Collateralized Mortgage Obligation A collateralized mortgage obligation is a mortgage-backed security where principal repayments are organized by maturity and level of risk. Read More » Default Default happens when a borrower fails to repay a portion or all of a debt including interest or principal. Read More » Tranches Tranches are portions of debt or securities that are structured to divide risk or group characteristics in ways that are marketable to various investors. Read More » CONNECT WITH INVESTOPEDIA Email sent to: mondemand.forex@blogger.com To update your newsletter preferences or unsubscribe, click here. 114 West 41st St, floor 8 New York NY 10036 © 2020, Investopedia, LLC, All Rights Reserved | Privacy Policy