A financial instrument that spreads the risk of corporate loans across many investors. The money is loaned to companies that typically can’t raise money otherwise e.g. through a traditional bank loan.
This is similar to CDOs (collateralized debt obligations), but instead of mortgages it’s corporate loans.
During the COVID-19 economic crisis, CLOs are starting default at the highest rates ever which leads some to believe banks are over levered (carrying too much risk) which could create a cascading effect similar to the 2008 financial crisis.