Collateralized loan obligations (CLOs) are loans that are repackaged and bought by investors. These securities are backed by a pool of loans comparable to collateralized mortgage obligations (CMOs). With CLOs, the underlying debt is loans, as opposed to mortgages.
Securitization is the process of pooling assets into a marketable security. CLOs are often used by private equity firms to carry out leveraged buyouts (LBOs) and are backed by corporate loans with low credit ratings.
Investors take on most of the risk if borrowers default and cannot make regular debt payments on the underlying loans. Since investors have to take on default risk, they are provided with diversification and higher-than-average projected returns.
Volta Finance Ltd (LON:VTA) is a closed-ended limited liability company registered in Guernsey. Volta’s investment objectives are to seek to preserve capital across the credit cycle and to provide a stable stream of income to its Shareholders through dividends that it expects to distribute on a quarterly basis.