The recent spat of corporate bankruptcies and downgrades continues taking its toll on the CDO market, more recently the CLO variety, both the old-fashioned cashflow structures of the late-90s and the currently popular synthetic balance-sheet and arbitrage deals, sources said.

Two cashflow, balance-sheet CLOs recently began early amortizations after triggering diversity covenants, and there may be more in the wings, especially since managers likely prefer an early amortization prompted by diversity covenants rather than credit covenants, which would have more dire consequences for the collateral managers, sources argue.

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