You may have heard that collateralized loan obligations are all the rage. But what are they, and why should you care?

Collateralized loan obligations (CLOs) are a type of security comprised of leveraged loans, or loans to businesses with high debt. Investors are currently trying to buy up floating-rate debt, or debt that will reap large interest payments that will continue to rise in proportion to expected hikes in global interest rates. CLOs can be divvied up into "tranches" - a high-risk, "equity" tranche, a moderate, "mezzanine" tranche, and a relatively safe but low-reward "senior" tranche, adding additional appeal to investors.

CLOs are one such source of this floating-rate debt. Indeed, investors are so excited about high yields from CLOs that CLO issuance broke records in 2017 - and is on track to break records again in 2018, as it's already up over 38% this year.

The borrowers in the leveraged loan market is increasingly made up of large, well-known companies, like Tesla (TSLA  ), Dell, BMC Software, Softbank, WeWork, and Uber -all of whom have accrued so much debt that their credit is considered below investment grade, or "junk." The lenders are also changing. Where major, heavily-regulated banks used to make 70% of the loans in this market, they now only make 54%, replaced instead by hedge funds, insurance companies, private equity firms, and other, less-scrutinized entities. The debt is also increasingly being used to enrich investors rather than grow or heal a failing business.

The problem is that this frenzy for CLOs results in an uptick in corporate borrowing and lending has diminished the quality of the loans: the credit rating of borrowers drops, and the loans lack some of the traditional protections for lenders. Ultimately, this makes it ever more likely that lenders will recover less money if borrowers go bankrupt or default. Credit-rating companies like Standard & Poor and Moody's have issued cautionary notes about CLOs.

The ultimate concern is that CLOs might be the new mortgage lending, which, as you may recall, contributed to the 2008 financial crisis. Runaway competition from unregulated lenders pressured banks to lower their lending standards, leading to larger, less secure loans to higher-risk borrowers. The speculative bubble was unsustainable, and collapsed when borrowers defaulted.

And while financial regulators in the US have certainly noticed the furor around CLOs, they have done little to dampen it. Indeed, earlier this year Federal Reserve chairman Steve Mnuchin and the Comptroller of the Currency Office may have added fuel to the fire by saying that their recommendation against lending to companies with debt in excess of six times their annual cash flow was not a strict rule. While they later clarified that they had no intent to lower lending standards, and only made the announcement because they feel banks are better capitalized and capable of withstanding serious market corrections, markets responded by ramping up leveraged lending.

The CLO market may also feel emboldened by the Trump administration, which has generally eased regulations and been friendly to the financial industry. An appeals court in Washington also recently rolled back a Dodd-Frank Act rule requiring firms that bundle loans into packages to sell to investors to retain a 5% percentage of any sale. The rule was designed to ensure that these firms, called "securitizers," would have an incentive to make only secure, quality loans, but independent CLO managers successfully challenged it.