In a synthetic CDO, payments to the tranches issued are generated from the collateral's coupon interest and principal from maturing or prepaid debt obligations.

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In a synthetic CDO, payments to the tranches are generated from premiums paid on credit default swaps (CDS) and not directly from the coupon interest and principal of physical debt obligations. Synthetic CDOs involve a portfolio of CDS agreements to simulate exposure to actual debt without owning the underlying assets.

In a Synthetic CDO, Payments to the Tranches Issued Are