A collateralized debt obligation (CDO) is a complex financial instrument that is created by pooling together a large number of loans, bonds, or other assets and then issuing securities that are backed by the cash flows from those assets. The structure of a CDO is typically divided into several layers or tranches, each with its own level of risk and return.

The top layer of a CDO is known as the senior tranche, and it is the least risky of all the tranches. This tranche is typically rated AAA or AA by credit rating agencies, and it receives the first payments from the underlying assets. The senior tranche is also the first to be paid off in the event of a default on the underlying assets.

The middle layer of a CDO is known as the mezzanine tranche, and it is slightly riskier than the senior tranche. This tranche is typically rated A or BBB by credit rating agencies, and it receives the next payments from the underlying assets after the senior tranche has been paid.

The bottom layer of a CDO is known as the equity tranche, and it is the riskiest of all the tranches. This tranche is typically unrated by credit rating agencies, and it receives the last payments from the underlying assets after the senior and mezzanine tranches have been paid. The equity tranche is also the first to absorb any losses in the event of a default on the underlying assets.

In addition to these tranches, a CDO may also have other features such as a waterfall structure, which specifies the order in which the tranches are paid, and a credit enhancement mechanism, which provides additional protection to the senior tranche.

Overall, the structure of a CDO is designed to provide investors with a range of risk and return options, while also ensuring that the underlying assets are managed in a way that minimizes the risk of default.