A collateralized debt obligation (CDO) whose reference portfolio consists of cash assets or highly marketable (and hence credit-sensitive) securities such as loans and corporate bonds. The assets are typically sold by an originator (a bank) to a special purpose vehicle (SPV). The originator’s motive to do so could be to remove those assets from its balance sheet, to monetize them, or to transfer credit risk associated them. To cater to the different risk-return profits of investors, cash CDOs are usually tranched into different risk categories- equity, mezzanine, senior, and super-senior tranches. Investors in the most junior tranche (i.e., equity tranche) could lose their principal if losses are incurred on the collateral pool as they are the first to absorb such losses. The mezzanine tranche comes next in the order of loss absorption. Then come the senior tranche and the super-senior tranche.

Cash CDOs are typically classified into two categories: balance sheet CDOs and arbitrage CDOs. From a different angle, cash CDOs also subdivide into cash-flow CDOs and market-value CDOs.