Colateralized Bond Obligations

CBO

CBO’s (collateralized bond obligation) are sometimes called CDO (D= debt) and look somewhat like CMO’s (M= mortgage). This would be a private equity investment because we would own the equity of the issuer not the CBO issued bonds. We are talking about a vehicle that owns some underlying asset, such as investment grade bonds (some use high yield but I suggest only looking at investment grade), and then issues bonds backed by those assets. The difference between the income from the underlying asset (rated A+ to A-, -the investor's choice) and the bonds that are issued rated AAA is the return on our investment which we expect to be about 12 to 17%. Our investment would be much smaller than the total number of bonds so that the (about) 1% spread on the total is the 12 - 17% on the investment.

Mechanically, the proc...