As increasing demand ground CLO spreads tighter and tighter in 2005 - so much so that a number of deals were at risk of breaching spread requirements - more managers looked to middle market loan collateral as a higher yielding alternative.

In fact, loans from these smaller, regional issuers became more popular than ever last year, when U.S. middle-market CLO issuance reached a record $10.6 billion. According to JPMorgan Securities, middle market CLO issuance is on pace to reach $16 billion to $18 billion by yearend.

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