Though some argue the "no brainer" buys in the relatively new secondary CDO market disappeared six months ago, structural features of securitization have, in some cases, created a timing/rating arbitrage, whereby savvy investors can pick up downgraded mezzanine tranches of CDOs just before the notes start paying down.

For banged-up deals especially, such de-leveraging can warrant positive rating action of previously downgraded notes, even when the underlying portfolio has deteriorated further, though, according to sources, investors have typically priced this in well before the rating action. Still, most positive CDO rating actions over the past several months have been independent of or, in many cases, a result of portfolio deterioration, as the triggers embedded in the deals will often cause the top most notes to trap cash and/or pay down until the stress tests are met.

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