CLOs - the comeback year After explosive growth in the boom years, the issuance of collaterialised loan obligations (CLOs) dried up after the financial crisis as all of structured finance was lumped together and dumped. This year, CLOs, which bundle corporate loans primarily for leveraged buyouts, have staged a comeback. In 2012 issuance has surpassed $50bn, up from $13bn in 2011, and the largest annual tally since the boom years. Why the resurgence? One reason is yield. Newly issued triple-A rated CLO securities - those with the least exposure to potential losses in the underlying loans - yield about 2.25 per cent, a percentage point more than comparable securities bundling commercial mortgage loans, according to RBS. But yield hunt, particularly for investors who must buy highly rated securities, is only part of the story. Investors are no longer lumping CLOs together with the collateralised debt obligations (CDOs), the ones that bundled mortgage debt to such disastrous effect. There are two big differences between them. CLOs are a first-order securitisation. They bundle corporate loans. Mortgage CDOs were second order; they packaged securities that packaged mortgages. The collateral was also different. Low-rated corporate loans did not have the catastrophic losses that home loans did. Neither did CLOs. Trailing five-year losses for investment-grade CDOs surpass 50 per cent, according to Moody's. Losses for similarly rated CLO tranches are less than 1 per cent. CLO investors need to monitor the riskiness of the underlying loans as interest rates stay low. "Covenant lite" - a much debated lending practice where protections for lenders are stripped out - have returned. And CLOs fuelled the buyout boom of the last decade. Dodd Frank rules could prevent banks from making markets in CLOs, which would damp liquidity. CLOs are different from CDOs, but they are not without risk.