Standard & Poor's took a sledgehammer to Wellington Asset Management's Juniper 2000-1 arbitrage cashflow high yield CBO last Monday. The 2000 vintage issue had its A-3 and A3-L classes dropped to BBB' from AAA/Watch Negative'. The A4-L also had a dramatic drop to CCC' from A-/Watch Negative'.

Sources familiar with the situation said telecom defaults, credit migration and heavy par erosion were the cause of the severe downgrades.

Wellington's highly correlated Juniper 1999 cashflow HY CBO has migrated downward as well, and its A-1 class was recently dropped to A+' from AAA/Watch Negative' and Class A-2 to BBB+' from AAA/Watch Negative'.

The 1999 and 2000 deals are understood to have a strong correlation and heavy exposure to telecom-related firms. CDO investors note that manager and credit concentrations sometimes go hand-in-hand, since it is only natural that a portfolio manager develop a comfort level with certain credits.

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