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Collateralized Loan Obligations (CLOs) represent a high yielding, scalable, floating-rate investment alternative with a history of stable credit performance.One of the most important characteristics of CLOs is their floating-rate coupon, which helps insulate bond prices from volatile interest rates. However, CLOs have several features that make them an integral component of Guggenheim’s fixed-income strategies. ![]() As with other securities, CLOs are subject to credit, liquidity, and mark-to-market risk, and the basic architecture of CLOs requires that investors must understand the waterfall mechanisms and protections as well as the terms, conditions, and credit profile of the underlying loan collateral. ![]() CLOs’ historically low default rate across the ratings spectrum compares favorably to corporate debt. The combination of diversified, actively managed, senior-secured loan collateral along with sound securitization structures has resulted in favorable historical ratings performance. These loans, also known as bank loans or leveraged loans, typically occupy a first-lien position in the company’s capital structure, are secured by the company’s assets, and rank first in priority of payment ahead of unsecured debt in the event of bankruptcy. CLOs derive principal and interest from an actively managed, diversified pool of non-investment grade, senior-secured corporate loans. CLOs represent a $970 billion asset class within the broader $12 trillion structured credit fixed-income market, which also includes asset-backed securities (ABS). Collateralized loan obligations (CLOs) are typically a high yielding, scalable, floating-rate investment alternative to corporate bonds with a history of stable credit performance.
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