Analysts have adopted a bearish stance on German cash mezzanine CLOs, saying they expect the deteriorating German economic landscape and shifting rating methodology to further pressure performance in this asset class.

"Besides pool-specific weakening, the Damocles sword of a mix of weakening economic SME prospects, negative rating migration expectations partially accelerated by stricter rating assessments and uncertainty related to the refinancing of such transactions is hovering over German cash SME CLOs," Unicredit analysts said, adding that the secondary market for German cash mezzanine CLOs has consequently dried up in the current environment.

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