Definition for : Collateralised debt obligation, CDO

Debt securities issued by a special purpose vehicle, often a Securitisation vehicle, which buys and holds Bonds issued by corporations or banks (Collateralised bond obligation) or bank loans (Collateralised loan obligation). CDOs provide liquidity for securities that aren't automatically liquid. It is used by banks to refinance themselves with Investors wanting to take a Risk on a Debt portfolio. The level of the Risk will depend on the nature and quality of the Debts held by the vehicle and on the level of the ranking of the different Debt instruments issued by the vehicle.
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