Collateralised loan obligation

A collateralised loan obligation (CLO) is an asset backed security that is created by securitising loans, usually commercial loans made by a bank.

Although some types of CLO, especially those backed by mortgages, have an bad image due to their large scale misuse to repackage low quality mortgages as securities that were sold as safe investments with investment grade ratings. This does not mean that CLOs are necessarily flawed, however it was a dramatic demonstration of the importance of proper analysis of the load portfolio being packaged. Repackaging cannot remove (although it can redistribute) default risk.

For more detail see CDO

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