As the International Swaps and Derivatives Association prepares to release standards for trading leveraged loan credit default swaps - the market is expected to skyrocket just as the CDS of ABS market has thrived under increased standardization and liquidity. Syndicated loan volume alone has boomed over the past several years - reaching more than $3 trillion globally and constituting more than a third of all syndicated lending within the U.S., according to Fitch Ratings.

Already, several U.S. dealers are making markets in at least 80 to 100 names, according to James Batterman, a senior director at Fitch. Collateralized loan obligations are expected to benefit from the rise in LCDS activity, similar to the increase in flexibility felt by ABS CDO managers. CLO managers will be able to reference a wider range of assets, both in terms of vintage and name - assuming the synthetic market will include more obscure names. They should also be able to ramp up deals within a faster time period. "In the same way that investment-grade credit default swaps triggered a huge growth in the investment-grade CDO market, many market participants are expecting that leverage loan CDS will do the same for the CLO market," said Jeremy Carter, a director at Fitch, during a conference call on the matter late last week.

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