What Are CLOs and How Do They Work?

This white paper describes what CLOs are and how they fit into the broader basket of financial structured products. Keeping in mind that the arena of structured credit has changed much over the past couple of years, this paper refers to a 2006 CLO structure to describe the essentials of CLO structures. Bank loans are briefly described, followed by a section on how CLOs are managed. A brief history of CLOs is introduced with a section on the changing investor profile over the past few years, dovetailing into the role of rating agencies in the CLO market. Risk factors of investing in CLO paper are listed and the white paper ends with a view on the possible future of CLOs.