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In This List
COMMENTS

CLO Spotlight: U.S. CLO Exposure To Negative Corporate Rating Actions (As Of June 28, 2020)

COMMENTS

Leveraged Finance: Rated U.S. BSL CLOs: Six Graphical Insights On Second-Quarter 2020 Rating Actions For Widely Referenced Corporate Obligors

COMMENTS

SF Credit Brief: 63 CLO Tranches Downgraded By 1.2 Notches On Average In July 2020

COMMENTS

Tender Option Bond Ratings Recap As Of June 2020: How COVID-19 Has Affected The Secondary Derivative Market

FULL

Servicer Evaluation: NorthMarq Capital LLC


CLO Spotlight: U.S. CLO Exposure To Negative Corporate Rating Actions (As Of June 28, 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 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).

Table 1

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
Feb. 7 1 1
Feb. 14 1 2 3
Feb. 21 2 1 3 6
Feb. 28 2 2
March 6 2 5 7
March 13 4 3 1 5 13
March 20 45 27 38 26 136
March 27 122 26 36 114 298
April 2 123 21 32 105 281
April 10 61 19 10 110 200
April 17 84 10 13 76 183
April 24 57 11 4 95 167
May 1 36 4 3 92 135
May 8 54 9 2 46 111
May 15 35 3 36 74
May 22 37 5 1 22 65
May 29 33 2 1 13 49
June 5 22 2 4 11 39
June 12 39 2 20 61
June 19 32 13 45
June 22 5 2 7
(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).

Table 2

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).

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
'AAA' 1,077 0 0
'AA' 880 0 0
'A' 761 16 2
'BBB' 733 95 13
'BB' 615 295 48
'B' 185 176 95
'CCC' 13 11 85
Total 4,264 593 14

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:

http://www.standardandpoors.com/pt_LA/web/guest/article/-/view/sourceId/100044794

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.

Related Research

This report does not constitute a rating action.

Primary Contacts:Daniel Hu, FRM, New York (1) 212-438-2206;
daniel.hu@spglobal.com
Stephen A Anderberg, New York (1) 212-438-8991;
stephen.anderberg@spglobal.com
Robert E Schulz, CFA, New York (1) 212-438-7808;
robert.schulz@spglobal.com
Ramki Muthukrishnan, New York (1) 212-438-1384;
ramki.muthukrishnan@spglobal.com

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