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CLO: What it is and how It works

In the world of finance, company debt is often bought and sold among investors. A collateralized loan obligation can be a way for lenders to minimize their risk and for investors to maximize their returns. In this article, we’ll define collateralized loan obligations, explain how they work, explore how to create one and list some advantages of collateralized loan obligations for investors.

What is a collateralized loan obligation?

Also known as a CLO, collateralized loan obligations are securities, or tradable financial assets, that are backed by a pool of loans. Put simply, they are repackaged debt that has been sold to investors and a type of collateralized debt obligation. Though similar to a collateralized mortgage obligation, also known as a CMO, the underlying debt for CLOs are company loans instead of mortgages.

Volta Finance Limited (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.