A shift in the leveraged loan market has intensified grumbling among CLO managers about the way Standard & Poor’s rates the senior tranches of these deals.

When S&P overhauled its rating methodology for collateralized loan obligations in 2009, it incorporated updated recovery ratings assumptions on loans in the collateral pool when calculating the cash available to pay interest and principal to senior noteholders. Recovery ratings indicate the amount S&P expects loan investors to receive if the issuer defaults.

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