Which situation best describes the Amortization phase of a CDO?

The Amortization phase of a Collateralized Debt Obligation (CDO) is characterized by the process of paying down the outstanding balances of the securities issued to investors. During this phase, the cash flows generated by the underlying asset pool, such as loan repayments or interest payments, are primarily directed toward fulfilling investor obligations—essentially servicing the debt and ultimately paying down the principal.

This phase contrasts with other periods in the lifecycle of a CDO. For instance, during the Amortization phase, the focus is not on reinvesting cash flows (as seen in the reinvestment phase), nor is it related to the creation of the initial collateral portfolio, which occurs at the CDO's inception. Additionally, an Initial Public Offering (IPO) pertains to company equity and does not relate to the phases of managing a CDO. Hence, the scenario where cash flows are utilized to repay investors accurately captures the essence of the Amortization phase.