Collateralized Loan Obligations (CLOs) are a new asset class within the finance world. They offer diversification options and potential attractive returns to investors. However, their complex structure and involvement of multiple parties can make them difficult to understand. This guide explains what is clo, their benefits and risks, and the essential factors that investors need to consider when navigating a dynamic market.
What Exactly Is A CLO?
At its heart, a collateralized lending obligation (CLO) is a form of structured asset-backed investment. It is made by pooling diverse, often leveraged corporate loan portfolios and dividing the pool into tranches with varying levels of risk and return.
How Does CLO Work?
The process of creating a CLO and managing it involves several important steps:
- Acquisition of Assets: Typically, the manager of CLO is a specialized investing firm that acquires a collection of leveraged loan portfolios from several lenders. These loans are typically extended to companies that have lower credit scores or are in the process of restructuring.
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.
