A special purpose vehicle with securitization payments in the form of tranches. A collateralized debt obligation squared is backed by a pool of collateralized debt obligation tranches.
|||This is identical to a CDO except for the assets securing the obligation. Unlike the CDO, which is backed by a pool of bonds, loans and other credit instruments; CDO-squared arrangements are backed by CDO tranches. CDO-squared allows the banks to resell the credit risk that they have taken in CDOs.