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CLO Pulse Report Says COVID-19 Caused Deteriorating Credit Quality For European CLOs In Q1 2020

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CLO Pulse Report Says COVID-19 Caused Deteriorating Credit Quality For European CLOs In Q1 2020

LONDON (S&P Global Ratings) June 23, 2020--Although European collateralized loan obligation (CLO) credit quality deteriorated in the first quarter of 2020, less than a quarter of overall negative rating actions filtered through to CLOs and their holdings, said an S&P Global Ratings report published today.

The report titled "CLO Pulse Q1 2020: Sector Averages Of Reinvesting European CLO Assets," examines the aggregate asset quality of European CLOs that we rate through key credit metrics and by industry sectors. Specifically, our inaugural edition of sector average metrics for European CLO assets focuses on loans issued by over 480 corporate issuers, which represents over 90% of the assets under management (AUM) held in reinvesting European CLOs rated by S&P Global Ratings as reported at March 31. We calculated the average metrics for all floating-rate assets with both an S&P Global Ratings' credit rating and an S&P Global Ratings' recovery rating (the S&P Global Ratings-rated CLO assets), weighted by the euro notional exposure to each asset.

Credit quality deteriorated in the first quarter of 2020, though less than a quarter of our overall negative rating actions during the period filtered through to CLOs and their holdings. This is a result of the type of industries most visibly and severely affected during March, such as transportation, oil, travel, and retail, which are less prevalent in European CLOs. In contrast, entities held by European CLOs carry on average 0.25x less leverage than the overall European S&P Global Ratings-rated speculative-grade universe. Moreover, interest coverage ratios for European CLO obligors also imply, on average, at least 10% more headroom than the overall European speculative-grade universe.

This report does not constitute a rating action.

The report is available to subscribers of RatingsDirect at www.capitaliq.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 or sending an e-mail to research_request@spglobal.com. Ratings information can also be found on S&P Global Ratings' public website by using the Ratings search box located in the left column at www.standardandpoors.com. Alternatively, call one of the following S&P Global Ratings numbers: Client Support Europe (44) 20-7176-7176; London Press Office (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5914; or Moscow (7) 495-783-4009.

Primary Credit Analysts:Sandeep Chana, London (44) 20-7176-3923;
sandeep.chana@spglobal.com
Marta Stojanova, London + 44 20 7176 0476;
marta.stojanova@spglobal.com
Shane Ryan, London + 44 20 7176 3461;
shane.ryan@spglobal.com
Analytical Manager:Emanuele Tamburrano, London (44) 20-7176-3825;
emanuele.tamburrano@spglobal.com

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