When the housing bubble burst and subprime borrowers went into default at high rates, the CDO market went into a meltdown. This caused many investment banks to either go bankrupt or be bailed out by the government. Despite this, CDOs are still in use by investment banks today. Tom Nicholas and Matthew G.

Concept. CDOs vary in structure and underlying assets, but the basic principle is the same. A CDO is a type of asset-backed security. To create a CDO, a corporate entity is constructed to hold assets as collateral backing packages of cash flows which are sold to investors.

Key Takeaways. A collateralized loan obligation (CLO) is a single security backed by a pool of debt. CLOs are often corporate loans with low credit ratings or loans taken out by private equity firms to conduct leveraged buyouts.