What is single-tranche CDO?
Single-tranche CDO is a type of collateralised debt obligation deal that can be customised to an investor's preferences. It involves the sale of one tranche to an investor, which is a single portion of debt or structured financing.
Where have you heard about single-tranche CDO?
Single-tranche CDOs were introduced in 2003 as a more flexible alternative to traditional collateralised debt obligations.
They’re also known as “bespoke CDOs”, and investors may be familiar with them if they’ve looked into creating their own debt instrument. They’re known for their potential to yield a greater return on investment than a rated bond, however they come with more risks.
What you need to know aboutsingle-tranche CDO.
Single-tranche CDOs are useful for investors as they don’t need all the different classes of tranches (including equity, mezzanine and senior) be sold in order for a transaction to complete. This allows investors to target very specific risk and return profiles.
Investors should be aware that the different tranches in a collateralised debt obligation have varying risks attached to them, with the senior tranches being widely accepted as the safest. The lower tranches offer higher interest rates, however the risk of loss is greater.
Find out more about single-tranche CDO.
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