We address a two-period equilibrium model with securitization of collateral-backed promises. Borrowers
may suffer extra-economic default penalties and debts are pooled into collateralized loans obligations (CLO),
allowing different seniority levels among tranches in a same CLO.
As securities with lower priority receive nothing unless those with higher priority are fully paid, we will
have a non-convex set of feasible payment rates. Even in this context, equilibrium always exists. Moreover,
although CLO have endogenous payments, the durability of the collateral will avoid pessimistic beliefs about
the future rates of default.