Collateralized debt obligations backed by high yield bonds are a rare breed these days. While the product enjoyed popularity among CDO investors in the past, thus far in 2002 only four high yield CBOs have come to market. Among other factors, with the surge in downgrades to existing transactions over the last year or so, high yield CBOs are a tough sell at best.

While HY CBOs have been as much victims of the economic downturn as other investment vehicles - perhaps even more so, given the abysmal performance of high yield debt - experts say it will take more than a turnaround in the economy and the asset class to restore credibility and attractiveness. Indeed, the very structure of high yield CBOs and the philosophy guiding this, they say, need to change before the product can regain some of its appeal.

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