What is a CLO?

July 18, 2022

Learn more about this securitization product created to acquire and manage a pool of leveraged loans.

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. Interest and principal cash flows generated from the underlying collateral pool flow through the CLO and are distributed to debt and equity investors. Each debt tranche carries a different risk/return profile based on credit quality, risk of loss and priority to cash flow distributions. Structural features of the CLO, including coverage, diversification and exposure tests, dictate cash flow mechanics and further add to the risk/return profile.

Investment options range from AAA-rated debt tranches to non-rated equity. Banks, asset managers, insurance companies, pension funds, mutual funds, hedge funds and high net worth individuals are active investors in the CLO market and are attracted to the variety of risk/return options.

Given the complexities of the CLO structure and nuances of the bank loan asset class, it’s helpful to partner with an experienced service provider.

At U.S. Bank, we combine customized solutions with high-quality service to support even the most complex products and client needs. To learn more about the bank loan and CLO services that we offer, please contact Mike Zak at Michael.zak@usbank.com or 651-466-5070.

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Equal Housing Lender

Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rates and program terms are subject to change without notice. Mortgage, home equity and credit products are offered by U.S. Bank National Association. Deposit products are offered by U.S. Bank National Association. Member FDIC.