CDO investors have varying views on how managed investment-grade (IG) CDO vehicles should have handled and should continue handling their exposure to recently fallen angel WorldCom, Inc. (Ba2/BB). Some analysts speculate a 50/50 likelihood of default, as exemplified by its 11-year debt trading between 40 cents to 42 cents during the middle of last week.

"These WorldCom-type situations rarely get better, and asset managers can see the rating drops coming often months ahead of time," said one seasoned investor in distressed CDOs.

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