5Understanding the cashflows

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A CLO is a kind of investment fund, but it is one that has to follow closely defined rules about the flow of money into and out of the vehicle.

CLOs do not (generally) measure the performance of their loan investments in terms of their market value but in terms of par value, the amount they will repay at maturity.

The cashflow waterfall, or priority of payments, determines which investors and other participants get paid in which order. There are waterfalls for interest payments and principal proceeds.

The waterfalls constitute one of two mechanisms by which CLOs protect debt investors.end



Understand cashflows with the Creditflux CLO Money Machine app

Money Machine app

Change the app settings to see how default rates, prepayment rates and reinvestment spreads affect various types of CLO investors.

Download Money Machine app on the App Store




Turn to the print version of the CLO guide to find out:

When a CLO stops using principal to buy new assets and instead pays down the principal of the CLO notes in descending order of seniority

The different accounts CLOs have and how they are used to make payments and buy and sell assets

The rules of typical interest and principal waterfalls and what they mean in practice