An Introduction to Collateralised Loan Obligations (CLOs)

What on Earth is a CLO?

The financial instrument with a split personality

A CLO, or Collateralised Loan Obligation, might sound like something from a spy novel, but it’s actually a clever financial tool that’s all about packaging loans into structured securities. Think of it as a posh loan party where all the debt obligations get bundled together into one neat parcel.

Here’s the gist: a CLO pools a diverse mix of loans (primarily senior secured loans) into a single vehicle. This vehicle then issues structured finance instruments to investors, called CLO securities. These are sliced into tranches - like layers of a Victoria sponge -offering different levels of risk and return.