An Introduction to CLOs and CLO Equity

August 01, 2025

What is CLO Equity?

  • A collateralized loan obligation (CLO) is a special purpose investment vehicle that issues bonds at different rating levels as well as an unrated equity tranche to raise funds. The CLO then invests those proceeds in a diversified pool of floating rate loans
  • Bond investors are paid on a quarterly basis according to their seniority in the capital structure. Equity tranche investors receive all of the excess payments each quarter. The equity tranche bears the risk of the first loss but also captures the potential upside
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