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Single-tranche CDO

A synthetic CDO created to meet the needs of a particular investor, rather than forming part of a fully distributed CDO. For example, an investor may be willing to invest in a 4% to 5% tranche of a particular portfolio by buying a credit linked note that achieves a triple A credit rating. The dealer that arranges (buys protection on) the tranche is left with credit and correlation risk that it either hedges using other credit derivatives or retains in the hope of offloading this exposure to other investors at a later date.

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