CDOs (including CLOs) have several tranches of risk/return.
Payments are made in cascade style from the most senior (less risk/less return) to the least senior (higher risk/higher return). And loan defaults go in inverse order, from the the least senior to the most senior.
E.g. In the GFC, the equity tranche holders of CDOs were all or almost all wiped out (total loss), other tranches holders had several degrees of success in getting their money back.
The less risky tranche as receive first, have less risk and less return, and the last to receive, the equity tranche will have more risk and for that have a higher risk premium (aka return).
