A collateralized loan obligation (CLO) is a securitization product created to acquire and manage a pool of leveraged loans. CLOs issue multiple debt tranches along with equity and use the proceeds from the issuance to obtain a diverse pool of syndicated bank loans.

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.

The CLO manager raises capital from investors. The investors choose a tranche that meets their risk and return expectations. The CLO manager uses the capital collected from investors to purchase loans. The interest generated from the loans is used to pay investors, starting at the top tranche.

A collateralized loan obligation (CLO) is a single security backed by a pool of debt. The process of pooling assets into a marketable security is called securitization.