Collateralized loan obligation (CLO)

A Collateralized Loan Obligation (CLO) is a financial investment product that pools together many different loans, typically loans made to companies. These pooled loans are then sliced into different layers, called tranches, each with varying levels of risk and return. Investors buy these tranches based on their appetite for risk; safer tranches offer lower returns, while riskier ones can provide higher returns. The cash flow from the underlying loans—interest and fees—is used to pay investors. CLOs help lenders free up capital and transfer risk, while offering investors a range of investment options in corporate debt.