medium · Debt Capital Markets
What is the primary motive for an investor to purchase the equity tranche of a Collateralized Loan Obligation (CLO)?
- To capture the excess spread between the loan pool's yield and the cost of the debt tranches.
- To benefit from the dual-recourse protection offered by the collateral manager.
- To hedge against falling interest rates due to the equity tranche's positive convexity.
- To obtain a highly liquid, AAA-rated investment with minimal credit risk.
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