A CDO whose purpose is to allow a money manager to expand assets under management and equity investors to achieve non-recourse leverage to CDO assets. There is no " arbitrage" in the classic sense of the word. Rather, equity holders hope to capture the difference between the after-default yield on the assets and the financing cost due debt tranches.
See collateralized debt obligation ( CDO). American Banker Glossary
Financial and business terms. 2012.