CLO (Collateralized Loan Obligation)
Corporate Credit Analysis glossary · Corporate Credit Analysis
Definition
A structured vehicle that holds a portfolio of leveraged loans and issues tranched debt and equity against the portfolio. CLOs are the largest buyer of US institutional leveraged loans.
CLO (Collateralized Loan Obligation) in plain English
A CLO is like a giant basket that buys hundreds of risky business loans, then sells slices of that basket to different investors. The slices (called tranches) are layered by risk: the top slice gets paid first and is safest, while the bottom slice gets paid last but earns the most if everything goes well. It's a way to bundle many loans so different investors can pick exactly how much risk they want. CLOs matter because they're the single biggest buyer of these risky corporate loans in the U.S., so they largely fund that whole market.
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