For CLO managers, watching the declining performance of their underlying collateral has been about as much fun as a Tijuana jail. And it doesn't look like they'll make bail anytime soon.

A number of issues are putting pressure on CLO mangers, the most burdensome of which, sources say, is deteriorating loan value. Deteriorating value is driving down ratings, and, adding fuel to this fire, the rating agencies have proposed changes to their CLO rating methodologies, which could push ratings down further. Meanwhile, the falling three-month Libor rate is also cutting into returns.

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