Despite the poor issuance level in the primary market for syndicated loans this year, the issuance of CLOs has remained fairly competitive. As of Oct. 30, Standard & Poor's had rated 29 CLOs, compared to 29 for the whole of 2001.

David Tesher, managing director and head of Standard & Poor's Fixed Income CDO/CLO group, expects the number of CLOs issued in 2002 to top out at 30.

"From a ratings-volatility perspective, arbitrage CLOs have performed more favorably than CDO transactions backed predominately by corporate bonds," Tesher said at the rating agencies Loan Ratings and Recoveries conference held in New York last week. Tesher added that recoveries have been far better for CLOs than bond backed deals.

Out of the 132 CLOs rated by S&P, only 5.2% have experienced any rating action, Tesher said, and out of the 67 managers that have structured CLOs in the U.S., only seven structured have been either placed on negative credit watch or downgraded.

The relative strength of CLOs lies in the fact that bank debt has fared better than other asset classes in the tough economy.

Despite the better performance of loans as collateral, it has still not been an easy year for CLO managers. CLOs have been getting done - last week, for instance, the Blackstone Group closed on a $600 million CLO -but it has been tougher to raise interests and cash, said Mike Hatley, president and CIO at ING Capital Advisors.

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