(Editor's Note: Our "Risky Credits" series focuses on U.S. and Canadian 'CCC' rated corporate issuers, as well as their first cousins rated 'B-'. Because the majority of defaults are from companies rated in the 'CCC' category, these and 'B-' rated companies with negative outlooks or ratings on CreditWatch negative are even more important to monitor in this unprecedented downturn and uncertain recovery.)
- The number of 'CCC' category ratings shrank slightly in July, to 249 from 256 in June, but remains elevated compared with the pre-COVID-19 tally of only 125 as of Feb. 28, 2020.
- Market risks have eased as the U.S. 'B' and 'CCC' composite spreads narrowed in July by 11% and 9%, respectively, to 662 basis points and 1,120 basis points.
- There were 14 defaults in the U.S. and Canada in July among companies previously rated in the 'CCC' and 'CC' rating categories, compared with only five defaults in July 2019.
- We have downgraded or placed on CreditWatch with negative implications slightly more than 31% of collateral for U.S. broadly syndicated loan collateralized loan obligations since March 1, 2020.
On This Month's Front Burner
The 'CCC' category shrinks: The number of 'CCC' category ratings shrank in July to 249 from its all-time high of 256 in June. The slight drop is attributable to a consistently elevated number of defaults, offset by a downward trend of issuers transitioning into the 'CCC' category.
The category accounts for 93% of the defaults in the U.S. and Canada so far this year. Only 1.4% of 'B-' rated companies transitioned to the 'CCC' rating category in July, as opposed to 2.0% in June and 14.5% in April (an all-time high). As a result, the three-month weighted average of these transitions dropped two-thirds compared with June.
Negative bias eases: The proportion of companies with negative outlooks or ratings on CreditWatch with negative implications marginally shrank in July among 'B-' and 'CCC' category ratings as financing conditions for U.S. corporations improved and more businesses in the U.S. and Canada gradually returned to normal operations. For more information, see "COVID-19 Impact: Key Takeaways From Our Articles."
Spreads narrow: Market risk eased as the U.S. 'B' and 'CCC' composite spreads narrowed in July by 11% and 9%, respectively, to 662 basis points (bps) and 1,120 bps. The U.S. speculative-grade composite spread narrowed significantly in July, dropping 15% to 588 bps (as of Aug. 5), the lowest it has been since March 5, 2020.
Defaults continue to rise: There were 15 defaults in the U.S. and Canada in July (14 from companies previously rated in the 'CCC' or 'CC' rating categories), and there have been another three so far in August (as of Aug. 10; all from companies rated 'CCC' and below).
Missed payments lead defaults: Since defaults began to pick up in April, missed interest payments have accounted for 40% of defaults, compared with only 29% due to bankruptcy. Over 90% of total defaults in the U.S. and Canada since March were from companies rated in the 'CCC' or lower rating categories prior to default.
Bids recover: The average bid of 'CCC' rated loans has recovered 24.5% from its 2020 low, while that of 'B' rated loans has recovered 23%.
CLO collateral actions: Negative rating actions on U.S. corporate entities have slowed considerably since peaking in late March and early April. Since early March, we have downgraded or placed on CreditWatch with negative implications just over 30% of U.S. broadly syndicated loan (BSL) collateralized loan obligation (CLO) collateral (in comparison, about 40% of U.S. and Canadian corporate and sovereign issuer ratings have been affected by COVID-19 and oil prices). The 'CCC' buckets are now just under 11%, and 449 tranches across 259 CLO transactions are currently on CreditWatch negative.
|Top 20 Rating Changes To 'CCC' From 'B-' By Debt Amount (Year To Date)|
|Rating date||Issuer||Country||Sector||Rating to||Rating from||Debt amount (mil. US$)|
|Cayman Islands||High technology||CCC+||B-||36,029|
|Canada||Aerospace and defense||CCC+||B-||9,287|
First Quantum Minerals Ltd.
|Canada||Metals, mining, and steel||CCC+||B-||6,000|
Clear Channel Outdoor Holdings Inc.
|U.S.||Media and entertainment||CCC+||B-||5,835|
Hertz Global Holdings Inc.
Nabors Industries Ltd.
|Bermuda||Oil and gas exploration and production||CCC+||B-||3,725|
GTT Communications Inc.
Advantage Solutions Inc.
Varsity Brands Holding Co Inc.
|Canada||Media and entertainment||CCC-||B-||2,745|
SM Energy Co.
|U.S.||Oil and gas exploration and production||CC||B-||2,300|
Aveanna Healthcare LLC (Aveanna Healthcare Holdings Inc.)
FXI Holdings Inc.
|U.S.||Chemicals, packaging, and environmental services||CCC+||B-||2,075|
Helix Acquisition Holdings Inc.
Life Time Inc.
|U.S.||Media and entertainment||CCC+||B-||1,984|
AVSC Holding Corp.
|U.S.||Media and entertainment||CCC||B-||1,980|
Syniverse Holdings Inc.
Callon Petroleum Co.
|U.S.||Oil and gas exploration and production||CC||B-||1,900|
Mohegan Tribal Gaming Authority
|U.S.||Media and entertainment||CCC+||B-||1,876|
Flexential Intermediate Corp.
|Source: S&P Global Ratings. Data as of July 31, 2020.|
- A Round-Trip Ticket: Some Companies Downgraded To 'CCC+' Could Be Headed To 'B-' As The Economy Recovers, Aug. 7, 2020
- Consumer And Service Sector Defaults Help Push The 2020 Corporate Tally To 147, July 31, 2020
- U.S. CLO Rating Actions And Exposure To Negative Corporate Rating Actions (As Of July 26, 2020), July 29, 2020
- U.S. Leveraged Finance Q2 2020 Update: Recovery Ratings Maintain Social Distance From Credit Impact Of COVID-19 Pandemic, July 23, 2020
- U.S. Biweekly Economic Roundup: Recent Gains Are Likely To Slip On Rising COVID-19 Cases, July 17, 2020
- The U.S. Distress Ratio Continues To Ease From Its March Peak, July 16, 2020
- Weakest Links Reach A New High As Their Pace Of Growth Slows, July 13, 2020
- Credit Conditions North America: Rolling Out The Recovery, June 30, 2020
- Risky Credits: The Drop-Off To The 'CCC' Rating Category From 'B-' Still Looms Large, June 29, 2020
This report does not constitute a rating action.
|Credit Markets Research:||Nicole Serino, New York + 1 (212) 438 1396;|
|Sudeep K Kesh, New York (1) 212-438-7982;|
|Leveraged Finance:||Robert E Schulz, CFA, New York (1) 212-438-7808;|
|Ramki Muthukrishnan, New York (1) 212-438-1384;|
|Research Contributor:||Lyndon Fernandes, CRISIL Global Analytical Center, an S&P affiliate, Mumbai|
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