Liabilities
Any company that has assets also has liabilities. In the case of a CDO, these liabilities have a detailed and strict ranking of seniority, going up the CDO’s capital structure as equity or preferred shares, subordinated debt, mezzanine debt,and senior debt. These tranches of notes and equity are commonly labeled Class A, Class B, Class C, and so forth going from top to bottom of the capital structure. They range from the most secured AAA rated tranche with the greatest amount of subordination beneath it, to the most levered, unrated equity tranche. Figure 1 shows a simplified tranche structure for a CDO