If one debt instrument could be designated a long shot in this environment, distressed debt CLOs might be the frontrunner. So what's the story with the two deals on watch for upgrade - a great rarity for any CDO - that are backed by, primarily, distressed loans?
After 12 months of record-making downgrades, more than one investor probably flinched when Moody's Investors Service issued an upgrade watch last week for a few classes in both ARK II CLO 2001-1 and Endeavour LLC CDOs. While a watch doesn't translate into an upgrade per se, insiders believe its quite likely. Recoveries for both vehicles have been much more quick to actualize than even the ratings agencies predicted.