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CLO Spotlight: U.S. CLO Exposure To Negative Corporate Rating Actions (As Of May 3, 2020)


U.S. BSL CLO Obligors: Corporate Rating Actions Tracker 2024 (As Of July 19)


Weekly European CLO Update


Table Of Contents: S&P Global Ratings Credit Rating Models


Legacy U.K. Buy-To-Let RMBS: Crunch Time For Arrears And Losses

CLO Spotlight: U.S. CLO Exposure To Negative Corporate Rating Actions (As Of May 3, 2020)

(Editor's Note: This article is part of a series in which we list companies with loans held in U.S. broadly syndicated CLO collateral pools that have experienced negative rating actions. We will update and republish the list of affected CLO obligors on a periodic basis.)

As of May 3, 2020, over 400 of the more than 1,500 obligors held in U.S. broadly syndicated collateralized loan obligations (BSL CLOs) rated by S&P Global Ratings have either been downgraded or placed on CreditWatch with negative implications, or both. This represents more than 27% of the assets held in these transactions. The S&P Global Ratings Weighted Average Rating Factor (SPWARF) of the U.S. BSL CLOs within the CLO Insights 2020 Index increased to 2986 as of May 3 from 2639 at the beginning of March, which means the average CLO asset rating has fallen below the 'B' level of 2860.

Over the past week (April 27 through May 3), S&P Global Ratings has taken negative rating actions on issuers across various sectors found in U.S. BSL CLOs. This included three hotel, restaurant, and leisure issuers and two entertainment issuers (these two sectors represent most of the negative rating actions affecting U.S. BSL CLOs since March).

Assessing The Pace Of Negative Corporate Rating Actions

Over the past few weeks, the number of negative rating actions have begun to moderate, and the mix of rating actions has also changed, with more outlook revisions and fewer downgrades (see table 1). For the week ended May 1, downgrades represented about 33% rating actions, while outlook revisions represented over 60%. However, although the absolute number of rating actions has been declining, companies on CreditWatch negative are candidates for downgrade, as are issuers with negative rating outlooks, albeit over a longer time horizon. About 10% of exposures across the CLO Insights 2020 Index are on CreditWatch negative, while more than 30% have a negative rating outlook (see table 2).

Table 1

COVID-19- And Oil Price-Related Public Rating Actions On Corporate, Sovereign, And Project Finance Issuers(i)
Weekly distribution of issuers affected (by rating action type)
(No. of issuers)
CreditWatch negative placements Downgrades Downgrades and CreditWatch changes Outlook revisions Total
Feb. 7, 2020 1 - - - 1
Feb. 14, 2020 - 1 - 2 5
Feb. 21, 2020 1 2 - 3 9
Feb. 28, 2020 - - - 4 8
March 6, 2020 - 1 1 5 12
March 13, 2020 4 9 2 8 31
March 20, 2020 59 50 42 30 211
March 27, 2020 44 129 28 118 437
April 2, 2020 42 136 25 106 415
April 10, 2020 12 70 15 110 317
April 17, 2020 15 95 6 76 268
April 24, 2020 6 65 10 96 273
May 1, 2020 3 44 5 93 238
(i)Data as of May 1, 2020. Note: The rating actions are tracked at the issuer level. If an issuer has had multiple rating actions since Feb. 3, 2020, the last rating action date is shown. Source: S&P Global Ratings Research.

On April 28, we lowered our ratings on the widely held health care provider and services issuer Envision Healthcare Corp. to 'SD' (selective default). The downgrade followed the settlement of Envision's offer to exchange its senior unsecured notes due in 2026 at about $0.53 on the dollar and its floating-rate private placement notes due in 2026 at $0.55 on the dollar for new secured term debt (see "Envision Healthcare Corp. Downgraded To 'SD', Debt To 'D' On Distressed Exchange," published April 28, 2020). We subsequently raised our ratings on Envision to 'CCC' on May 4, following the completion of the distressed debt exchange (see "Envision Healthcare Corp. Upgraded To 'CCC' From 'SD', Debt Rating Actions Taken; Outlook Negative," published May 4, 2020).

As of May 3, the 'CCC' buckets in U.S. BSL CLOs have exceeded 12%--a significant increase from 4.1% at the beginning of March (see table 2). However, the increase in the 'CCC' buckets has slowed somewhat within the past two weeks, given the reduced pace of corporate downgrades during that time.

Table 2

CLO Index Metrics (CLO Insights 2020 Index)
'B-' (%) 'CCC' category (%) Nonperforming category (%) Junior O/C cushion (%) Weighted avg. price of portfolio SPWARF Par change (%) CreditWatch negative (%) Negative outlook (%)
Jan. 1, 2020 19.97 4.11 0.54 3.86 97.45 2644 0.00 1.63 17.36
Feb. 1, 2020 20.20 4.07 0.56 3.80 97.55 2645 (0.04) 1.33 17.66
March 1, 2020 20.16 4.13 0.63 3.76 95.83 2639 (0.07) 1.61 17.18
March 20, 2020 22.91 6.92 0.65 3.74 79.53 2753 (0.09) 8.47 18.85
March 29, 2020 23.23 8.43 0.72 3.74 80.92 2807 (0.09) 9.89 20.86
April 5, 2020 23.47 10.06 0.81 3.73 83.11 2857 (0.10) 10.71 24.37
April 12, 2020 23.86 10.91 1.36 3.72 86.22 2923 (0.10) 10.62 27.40
April 19, 2020 23.83 11.84 1.66 3.59 87.32 2965 (0.10) 9.92 29.79
April 26, 2020 24.47 12.10 1.65 3.00 86.80 2975 (0.17) 10.07 32.18
May 3, 2020 25.40 12.31 1.61 2.38 86.73 2986 (0.23) 9.82 32.56
Note: The CLO Insights 2020 Index is an index of 410 S&P Global Ratings rated U.S. BSL CLOs that will be reinvesting for all of 2020. BSL CLO--Broadly syndicated loan collateralized loan obligation. O/C--Overcollateralization. SPWARF--S&P Global Ratings weighted average rating factor.

Most U.S. BSL CLOs have an allowable bucket of 7.5% for loans from 'CCC'-rated obligors. Above that amount, there is no forced sale of assets. But the excess 'CCC' loans above the 7.5% threshold are carried at market value rather than par value for purposes of calculating the CLO overcollateralization (O/C) ratio tests. The increase in loans from 'CCC'-rated obligors, combined with low loan prices from 'CCC'-rated issuers, will likely reduce the cushion for U.S. CLO junior O/C ratio tests as the April CLO trustee reports are issued in the coming weeks.

As the late March 2020 trustee reports are being processed, we see that average junior O/C cushions are beginning to decline, falling to 2.4% across the CLO Insights 2020 Index from 3.8% at the start of the year. Some deals have experienced several percentage point declines from prior-month reports, while others have eroded all of their O/C cushion within one month. Within the trustee reports we have processed as of May 3, about 90 of the U.S. BSL CLOs rated by S&P Global Ratings are failing one or more of their O/C tests (including amortizing CLOs). As more late March and early April reports roll in, we expect the average cushion for the CLO Insights 2020 Index will continue to decline.

As the April payment reports are being processed, we note that the senior notes of reinvesting CLOs are beginning to experience paydowns due to interest diversion. Of the approximately 30 deals with processed April payment reports, the average pay down to the senior notes is about 0.73% (as a percentage of the original balance of the senior notes), and about half of these deals also saw interest deferrals, on average, worth about 2.04% (as a percentage of the original balance of the deferrable notes).

As of May 3, 406 tranches across 305 U.S. BSL CLOs we rate have ratings on CreditWatch negative. Due to the high volume of resets in past years, there is a wider range of vintages that are still outstanding. Most of the U.S. BSL CLOs on CreditWatch negative originally closed before the energy slowdown (2015 vintage and prior), while more recent vintages make a smaller proportion of the other deals on CreditWatch negative (see table 3). Because the transactions that closed in 2015 and prior have seasoned through the energy slowdown, their already weaker portfolio metrics are now more vulnerable, given the current economic conditions.

Table 3

CreditWatch Breakdown By Vintage
Original vintage No. of CLOs with one or more ratings on CreditWatch negative
2015 and prior 170
2016 and 2017 47
2018 and after 88
Total 305
CLO--Collateralized loan obligfation.

Copy and paste the URL below into your browser to download lists of the negative rating actions take this year on U.S. BSL CLO obligors and U.S. CLO tranches as of May 3, 2020, which we will update periodically as circumstances warrant:

S&P Global Ratings acknowledges a high degree of uncertainty about the rate of spread and peak of the coronavirus outbreak. Some government authorities estimate the pandemic will peak about midyear, and we are using this assumption in assessing the economic and credit implications. We believe the measures adopted to contain COVID-19 have pushed the global economy into recession (see our macroeconomic and credit updates here: As the situation evolves, we will update our assumptions and estimates accordingly.

Related Research

This report does not constitute a rating action.

Primary Contacts:Daniel Hu, FRM, New York + 1 (212) 438 2206;
Stephen A Anderberg, New York (1) 212-438-8991;
Robert E Schulz, CFA, New York (1) 212-438-7808;
Ramki Muthukrishnan, New York (1) 212-438-1384;

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