Figure: Example of a Typical CDO Tranche Structure and Associated Risks
Tranche: Senior
Credit Rating: AAA
Priority in the Event of Default: Highest
Credit Risk: Lowest
Expected Yield: Lower


Tranche: Mezzanine
Credit Rating: AA, A, BBB
Priority in the Event of Default: Between highest & lowest
Credit Risk: Between highest & lowest
Risk Expected Yield: Between highest & lowest


Tranche: Equity
Credit Rating: BB, B, CCC
Priority in the Event of Default: Lowest
Credit Risk: Highest
Expected Yield: Higher

Source: OIG analysis of publicly available information from credit rating agencies.