equity tranche

equity tranche
One name for the lowest quality (highest credit risk) tranche in a CDO structure.
Sometimes called junior subordinated notes, preferred stock or income notes. The contractual rules for the cash flow distributions in a CDO structure enable the senior tranches to receive high credit ratings by shifting risk to the equity tranche.
See collateralized debt obligation and waterfall. American Banker Glossary

Financial and business terms. 2012.

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