CLO managers could find it harder to attract investors in the riskiest slices of their deals under revised rating criteria announced by Moody’s Investors Service this month.

The rating agency has changed the way it assesses the risk of combo notes, a hybrid debt and equity instrument, to account for what happens to them when a deal is refinanced. This could result in downgrades on existing combo notes issued by 38 collateralized loan obligations. It could also complicate the way future combo notes are structured.

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