Buybacks become minefield for distressed namesWhen corporates undertake distressed (sub-single B minus) exchanges, the rating agencies treat the trades as a default on the basis that if they did not take place then bankruptcy would be imminent. The problem for CLOs holding such loans is that their downgrade to defaulted status can breach their triple-C bucket limits and place additional strain on structures already struggling to cope (see Loan market: Default rating's unintended consequences, Euromoney, May 2009). According to Citi, recent analysis of 585 US CLO transactions shows that roughly three...
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