A type of asset-backed security (ABS) in which the securitized asset pool is composed of highly leveraged corporate loans (other than mortgages), usually related to M&A transactions such as LBOs or other types of acquisition financings. The CLO issuer holds and manages several tranches of loans grouped by credit rating, with each tranche having the right to the collateral and payment stream of the underlying loan pool in descending order. Lower-rated tranches hold increasingly subordinated rights to the collateral and payment stream. CLOs permit banks to disperse the credit risk of these loans out into the marketplace and allow investors to participate in the high-yield leveraged loan market.