Best of Times, the Worst of Times

The year 2008 begins with a tale of two seemingly conflicted realities. One on hand, middle-market CLOs continue to perform well and to avoid downgrades. On the other hand, like the broader CLO marketplace, deal flow is diminished and sporadic, and investors remain jittery and continue to demand higher premiums for their risk. Although some of this disconnect may result from fears that a softening economy could give rise to higher default rates of underlying obligors in the future, it may also be explained by a general mistrust of structured products that has spilled over from the subprime blow-up or a lack of information regarding the degree to which aggressive lending practices have infected the MM CLO space.

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