In case of default, the lender has the right to seize the collateral (usually real property) and in the case of a nonrecourse loan, the lender cannot claim anything beyond the pledged collateral. Thus...

In case of default, the lender has the right to seize the collateral (usually real property) and in the case of a nonrecourse loan, the lender cannot claim anything beyond the pledged collateral. Thus under a CLO, the borrower has a call option that would be exercised only if the value of the collateral falls below the value of the loan.