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ARTICLE · 12 JULY 2019

The Other ‘CFO' That Funds Should Know About

Herbert Smith Freehills Kramer LLP
Herbert Smith Freehills Kramer LLP
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Herbert Smith Freehills Kramer LLP

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Structured finance transactions, whether of the CLO or CDO variety, are highly regulated today, following the losses certain types of these products suffered in and around the 2008

United StatesFinance and Banking
Gilbert Liu
Gilbert Liu
Laurence Pettit
Laurence Pettit
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Structured finance transactions, whether of the CLO or CDO variety, are highly regulated today, following the losses certain types of these products suffered in and around the 2008 financial crisis. Nevertheless, with the strong performance of the leveraged finance market, the market for CLOs has rebounded strongly in the intervening years. At the same time, certain other structures are still less common and might have been overlooked by investors in recent years. One of these is the collateralized fund obligation (CFO).

How are CFOs different?

In other structured finance or securitization transactions, the transaction sponsor creates a pool of income-producing assets that are designed to produce cash flow on a regular, predictable schedule. One key variable could be the speed of prepayments, in cases where the underlying assets are susceptible to prepayment, but otherwise the portfolio generates interest and principal payments on a fixed timetable, subject to

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