Disclaimer: Views in this blog do not promote, and are not directly connected to any L&G product or service. Views are from a range of L&G investment professionals, may be specific to an author’s particular investment region or desk, and do not necessarily reflect the views of L&G. For investment professionals only.
The loan arranger
What are the potential benefits of collateralised loan obligations?
The world of finance is filled with jargon and acronyms, and CLOs (collateralised loan obligations) are a part of that ‘alphabet soup’. In simple terms, CLOs are a pool of loans, housed within a special purpose vehicle (SPV), with credit enhancement features that could potentially make different parts of the securitisation structure attractive to different investor types.
A CLO manager bundles together loans issued by banks to companies through the process of securitisation via an SPV. The bundle of bank loans is then split into tranches with different credit ratings, from an equity tranche (at the bottom of the capital structure which can offer the highest potential return, but also absorbs potential losses first) to the most senior AAA tranche, which is the first to receive cashflows from the underlying loans and the last to absorb any losses.
Recommended content for you
Learn more about our business
We are one of the world's largest asset managers, with capabilities across asset classes to meet our clients' objectives and a longstanding commitment to responsible investing.
