Collateralized Loan Obligations Explained

Collateralized loan obligations, commonly termed a CLO, the spawn of collateralized debt obligations that were at the center of the global financial crisis, remains strong after a 2014 peak, a recent Morgan Stanley report notes. While the investment concept has its critics, the investment bank points out the mechanics of how the investment operates.

Are collateralized loan obligations "filled to the brim with junky leveraged loans?"

A CLO is nothing more than a pool of leveraged loans packaged into a “special purpose vehicle” (SPV) and sold in pieces, known as “tranches,” said the February Morgan Stanley report titled a “A Primer on Collateralized Loan Obligations (CLOs).”

While related investment products have been tied...