CLO managers are starting to see the positive side affects of the recent rally in the leveraged loan market, as various CLO fundamentals improve. A somewhat surprising phenomenon, considering the market continues to face rising defaults and a still sluggish economy.

CLOs are seeing improvement by three principle measures: overcollateralization tests, triple-C basket levels and WARF “weighted average rating factor” ratios, which are used to asses the underlying credit quality of assets in a structured vehicle.

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