Collateralized Debt Obligation - Types of CDOs

Types of CDOs

A) Based on the underlying asset:

• Collateralized loan obligations (CLOs) — CDOs backed primarily by leveraged bank loans.
• Collateralized bond obligations (CBOs) — CDOs backed primarily by leveraged fixed income securities.
• Collateralized synthetic obligations (CSOs) — CDOs backed primarily by credit derivatives.
• Structured finance CDOs (SFCDOs) — CDOs backed primarily by structured products (such as asset-backed securities and mortgage-backed securities).

Note: In 2007, 47% of CDOs were backed by structured products, such as mortgages; 45% of CDOs were backed by loans, and only less than 10% of CDOs were backed by fixed income securities.

B) Other types of CDOs include:

• Commercial Real Estate CDOs (CRE CDOs) — backed primarily by commercial real estate assets

• Collateralized bond obligations (CBOs) — CDOs backed primarily by corporate bonds

• Collateralized Insurance Obligations (CIOs) — backed by insurance or, more usually, reinsurance contracts

• CDO-Squared — CDOs backed primarily by the tranches issued by other CDOs.

• CDO^n — Generic term for CDO3 (CDO cubed) and higher, where the CDO is backed by other CDOs/CDO2/CDO3. These are particularly difficult vehicles to model because of the possible repetition of exposures in the underlying CDO.