(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.)
- After peaking in late March and early April, negative rating actions on U.S. corporate entities have slowed down, reflecting the first credit effects of COVID-19 containment measures.
- Since early March, just over 30% of U.S. BSL CLO collateral have been downgraded or placed on CreditWatch negative (in comparison, about 40% of North American corporate and sovereign issuer ratings have been affected by COVID-19 and oil prices). The 'CCC' buckets are now just under 12%, and 593 tranches across 351 CLO transactions are currently on CreditWatch negative.
- The lists of U.S. CLO tranche ratings on CreditWatch negative as of June 28, 2020, can be downloaded here: http://www.standardandpoors.com/pt_LA/web/guest/article/-/view/sourceId/100044794
As of June 28, 2020, about 490 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 just over 30% of the assets held in these transactions.
Assessing The Pace Of Negative Corporate Rating Actions
Over the past few weeks, the number of negative rating actions has continued to decline after peaking in late March and early April (see table 1), while the number of rating affirmations with the removal of CreditWatch negative placements have picked up. About 6.2% of exposures across the CLO Insights 2020 Index are on CreditWatch negative, while about 38.1% have a negative rating outlook (see table 2).
|Weekly Distribution Of Issuers Affected By COVID-19 And Oil Prices By Action Type(i)|
|(Number of issuers)|
|Downgrade and CreditWatch changes||Downgrades||CreditWatch negative placements||Outlook revision||Total|
|(i)Rating actions are tracked at an issuer level. If an issuer has had multiple rating actions since Feb. 3, 2020, the last rating action date is reflected in the chart. Data as of June 22, 2020. Source: S&P Global Ratings Research.|
The S&P Global Ratings' weighted-average rating factor (SPWARF) of the U.S. BSL CLOs within the CLO Insights 2020 Index is at 2946. 'CCC' buckets have remained just below 12% for the fourth week in a row as exposure to nonperforming issuers has decreased slightly to about 1.4% this week. We note that some deals across the index have experienced a notable decline in par balance (on average, 37 basis points lower relative to the start of 2020), indicating that managers may be selling weaker assets at less than par, which is perhaps partly why the 'CCC' buckets have stabilized. Meanwhile, another smaller cohort of deals have experienced par gains from purchases at below par (particularly for deals that entered COVID-19 with more principal cash at hand).
|CLO Index Metrics (CLO Insights 2020 Index)|
|'B-' (%)||'CCC' category (%)||Nonperforming category (%)||Junior O/C cushion (%)||Weighted-average price of portfolio (%)||SPWARF (%)||Par change (%)||CreditWatch negative (%)||Outlook negative (%)|
|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 26, 2020||24.47||12.10||1.65||3.00||86.80||2975||(0.17)||10.07||32.18|
|May 31, 2020||25.71||12.12||1.27||1.29||90.12||2962||(0.31)||9.04||35.52|
|June 8, 2020||25.71||11.86||1.35||1.13||91.90||2960||(0.34)||8.42||36.34|
|June 14, 2020||25.85||11.73||1.48||1.13||91.94||2966||(0.35)||7.51||36.66|
|June 21, 2020||24.68||11.73||1.56||1.21||92.09||2961||(0.36)||6.50||37.80|
|June 28, 2020||24.83||11.73||1.37||1.30||91.49||2946||(0.37)||6.15||38.06|
|O/C--Overcollateralization. SPWARF--S&P Global Ratings weighted average rating factor.|
As trustee reports are being processed, we see that average junior overcollateralization (O/C) cushions have increased to 1.30% from 1.13% from the prior update two weeks ago, after falling from an average of 3.8% at the start of the year. Within the trustee reports we have processed as of June 28, just over 150 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), down by about 20 from the prior update two weeks ago.
As of June 30, 593 tranches across 351 U.S. BSL CLOs we rate have ratings on CreditWatch negative (see table 3).
|U.S. CLO Tranche Ratings On CreditWatch Negative|
|(As of June 30, 2020)|
|Rating category||No. of tranches||No. of tranche ratings on Watch Neg||% of tranche ratings on Watch Neg|
The URL below links to lists of negative rating actions taken this year on U.S. CLO tranches as of June 30, 2020, which we will update periodically as circumstances warrant:
S&P Global Ratings acknowledges a high degree of uncertainty about the evolution of the coronavirus pandemic. The consensus among health experts is that the pandemic may now be at, or near, its peak in some regions, but will remain a threat until a vaccine or effective treatment is widely available, which may not occur until the second half of 2021. We are using this assumption in assessing the economic and credit implications associated with the pandemic (see our research here: www.spglobal.com/ratings). As the situation evolves, we will update our assumptions and estimates accordingly.
- 75 'BBB' And 77 'BB' Category U.S. CLO Ratings Placed On Watch Negative, June 30, 2020
- Envision Healthcare Corp. Upgraded To 'CCC' From 'SD', Debt Rating Actions Taken; Outlook Negative, May 4, 2020
- Envision Healthcare Corp. Downgraded To 'SD', Debt To 'D' On Distressed Exchange, April 28, 2020
- Mister Car Wash Holdings Inc. Upgraded To 'CCC+' From 'SD' Post Debt Restructuring; Outlook Negative, April 20, 2020
- Ratings On 155 Classes From 113 U.S. Reinvesting CLOs Placed On Watch Negative, April 17, 2020
- Economic Research: An Already Historic U.S. Downturn Now Looks Even Worse, April 16, 2020
- Mister Car Wash Holdings Inc. Downgraded To 'SD' From 'CCC+' On Distressed Debt Restructuring, April 16, 2020
- 48 Ratings On 35 U.S. CLOs With Large Exposure to 'CCC' Rated Assets Placed On CreditWatch Negative, April 3, 2020
- 22 Ratings on 15 U.S. Reinvesting CLOs Exposed To Downgrades And Stressed Sectors Placed On CreditWatch Negative," March 27, 2020
- Global Macroeconomic Update, March 24: A Massive Hit To World Economic Growth, March 24, 2020
- Leveraged Finance: Issuer Spotlight: Top-250 CLO Obligors (Various Ratings Actions Taken In Gaming Sectors), March 23, 2020
- 25 Ratings On 15 U.S. CLO Transactions With Larger Exposures To Energy-Related Sectors Placed On Watch Negative, March 20, 2020.
- American Airlines Group And Subsidiary Downgraded To 'B' On Steeply Lower Demand Due To Coronavirus; Remain On Watch Neg, March 20, 2020
- Global IT Spending Set To Slide As Coronavirus Hits Hardware Sales, March 19, 2020
- Coronavirus Will Put U.S. CLO Diversity And Managers To The Test, March 13, 2020.
- Sector Averages Of Reinvesting U.S. BSL CLO Assets: Credit Quality Deteriorated In Fourth-Quarter 2019 As Loan Prices And Spreads Increased, Feb. 4, 2020
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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