In a recent research report, Wachovia says that 72 CLOs have now failed overcollateralisation (OC) tests out of a total of 508 post-2002 deals that the bank's researchers track. This is up from only 13 OC failures at the beginning of December. A total of 17 CLOs were breaching interest coverage (IC) tests on 5 February, up from 14 in December.
The finer interest diversion trigger is being breached on an even greater number of deals. A total of 125 CLOs are failing at least one par-based test (that is, either an OC test or the interest diversion test or both). This ios up from 45 deals in mid-December.


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The OC failures are more of a worry, The CCC haircuts really decimated the CDOs of ABS, and many hit EOD triggers few thought would ever be an issue.
the IC tests are by and large a temporary issue resulting from reset mismatch on assets and liabilites. In the US, issue is mostly played out with LIBOR hitting a floor and CLOs having mostly quarterly resets.
the IC tests are by and large a temporary issue resulting from reset mismatch on assets and liabilites. In the US, issue is mostly played out with LIBOR hitting a floor and CLOs having mostly quarterly resets.