easy · Debt Capital Markets bond-instruments-structures

Where does the Equity Tranche sit within the waterfall of a securitization structure like a Collateralized Loan Obligation (CLO)?

1. In the middle, as a buffer between senior and junior debt.
2. Directly below the AAA-rated senior tranche.
3. At the very bottom, acting as the first-loss piece.
4. At the very top, receiving interest before any other tranche.

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