An investment grade bond backed by a pool of bonds with differing degrees of credit quality.
An investment-grade bond backed by a large, diversified pool of junk bonds. Usually broken down into tiers with varying degrees of risk and varying interest rates.
Investment-grade bonds backed by a collection of junk bonds with different levels of risk, called tiers, that are determined by the quality of junk bond involved. CBOs backed by highly risky junk bonds receive higher interest rates than other CBOs.
A multi-tranche, pay-through debt security employing a pool of high yield corporate bonds as collateral. The corporate bond portfolio is highly diversified by both issuer and industry. Principal and interest payments on the underlying corporate bonds are used solely to meet CBO principal and interest obligations. The CBO is divided into several debt tranches and an equity portion. Similar to other asset-backed securities, the CBO structure is flexible and the debt may be structured in a variety of ways to satisfy investor cash flow requirements. A typical structure includes an A-rated senior secured tranche, a BB-rated second secured tranche and a Z-tranche. The secured tranches are normally sold to investors while the Z-bonds and equity portion are retained by the CBO sponsor. Currently, due to restrictions imposed by the Investment Company Act of 1940, CBOs are traded as private placements.
A securitized interest in a portfolio of bonds.
Securities issued against a portfolio of bonds with different degrees of credit quality.
A type of bond that is secured by and represents a share in a portfolio of bond investments.
A Collateralized Bond Obligation is an investment-grade bond backed by a pool of junk bonds. Junk bonds are typically not investment grade, but because they pool several types of credit quality bonds together, they offer enough diversification to be "investment grade."