What is CLO?
- CLOs are vehicles for investing in leveraged loans: they combine some characteristics of a fund and some of a securitisation.
- Leveraged loans are debt instruments issued by high yield companies, that is, those with relatively high levels of debt (see chart).
- A CLO has two different kinds of investor: those who buy its “equity” and those that invest in the various tranches of debt it issues, also known as CLO notes.
- The CLO note provides its equity investors with leverage which is committed for the life of the deal. CLO noteholders benefit, in turn, from features which protect them if the CLO’s investments perform poorly.
Turn to the print version of the CLO guide to find out:
- What kind of companies issue leveraged loans?
- The typical leverage, default and recovery rates of loan issuers
- Differences between leveraged loans and high yield bonds
- What are the different types of leveraged loans and which investors buy them?
- How credit investors assess and describe risk
- What is the point of tranching?
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