The well-documented struggles of the U.S. economy continue to pose increased difficulties for borrowers underlying U.S. middle market CLOs. Whereas early middle market CLOs benefited from solid performance of underlying middle market loans, the economic downturn has affected the viability of middle market companies resulting in a significant increase in defaults, which has contributed to negative rating pressures on middle market CLOs.

Evidence of this performance reversal was a recent string of downgrades and Negative Rating Outlooks by Fitch in its 2008/2009 rating review cycle of middle market CLOs. Of the 117 Fitch-rated U.S. middle market CLO tranches, 31 tranches were downgraded, 79 tranches were affirmed, and no tranches were upgraded.

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