A Collateralised Debt Obligation (CDO) is a type of structured asset-backed security (ABS) that is backed by a pool of loans or other assets and sold to institutional investors. A CDO credit risk is typically assessed based on a probability of default (PD) derived from ratings on those bonds or assets that consists of super senior (reinsurance), senior (priority of payment), mezzanine (middle), and equity tranche (most junior level with a higher rate of interest) with difference priorities regarding payment of principal and interest, and offer difference maturities and interest rates. CDOs were a popular financial product in the years leading up to the 2008 financial crisis, as they were often used to package and sell subprime mortgage loans.
Related Definitions in the Project: The Commercial Definitions
