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Equity

Also called first loss, the tranche in a CDO or securitisation capital structure that is the first to absorb losses. This is identical in concept to the position of common shares in a corporate capital structure. However, in CDOs and securitisations, the first-loss tranche does not take the legal form of common shares. CDO equity usually takes the form of preference shares, income notes or junior debt obligations. In a single-tranche CDO or index tranche, a credit default swap or credit-linked note with an attachment point of zero is known as the equity or first loss.

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