Credit deterioration among US CLO transactions continued to plateau in August 2009, according to S&P's latest CLO performance index. Although speculative-grade corporate defaults continued to have a negative impact on the performance of loans in the transactions' collateral portfolios, the average senior overcollateralisation (O/C) ratios for the 2003-2008 vintage CLOs improved from July.

Defaults among corporate leveraged loan issuers dropped to four in August from 11 in July, which resulted in a decrease in the percentage of defaulted loans in the average CLO collateral pool. The percentage of loans from triple-C rated obligors remained largely unchanged in most of the cohorts. The rise in market prices continued to contribute to an improvement in the O/C ratios, as many transactions carry the triple-C rated assets at market value for purposes of calculating the O/C ratios.

The percentage of underlying defaulted assets in the average US CLO fell in August, as only four US leveraged loan issuers defaulted during the month. Comparatively, 11 obligors defaulted in July, seven in June, eight in May, 10 in April, six in March, five in February and six in January.