A CBO is an ABS that is collateralized by a pool of debt obligations.  The CBO structure includes a senior tranche comprising between 70% and 80% of the deal that is assigned a floating rate payment to attract investors looking for that type of cash flow stream.  The junior tranches are assigned a fixed rate payment.

Because the CBO pool contains a mix of floating rate and fixed rate debt instruments, and because payments made from the pool are based mostly on a floating rate, a potential cash flow mismatch is introduced, and the managers of the pool often use interest rate swaps to control for this risk.  For example, the interest received by the CBO will be paid in fixed, while the investors of the CBO will receive London Interbank Offered Rate (LIBOR) plus some amount.  Thus, the appropriate swap arrangement will call for the management of the trust to pay fixed and receive floating.