We are providing an update on the CLO Insights 2020 Index on a more frequent basis to assess the impact of recent negative rating actions on the obligors held in U.S. broadly syndicated (BSL) collateralized loan obligation (CLO) collateral pools.
Dust Settling Around U.S. Corporate Ratings Placed On CreditWatch Negative Due To COVID-19
During the third quarter, the number of U.S. speculative-grade corporate downgrades continued to level off, along with a smattering of upgrades. As we approach the end of the quarter, we resolved many of the COVID-19-related CreditWatch negative placements on our ratings on corporate issuers, sometimes without a downgrade. As of this week, less than 4% of the CLO Insights 2020 Index's (the Index) portfolio exposures are on CreditWatch negative (see table 1 below).
|CLO Index Metrics (CLO Insights 2020 Index)|
|As of date||'B-' (%)||'CCC' category (%)||Nonperforming category (%)||Jr. O/C cushion (%)||Weighted avg. price of portfolio||SPWARF||Par change (%)||CreditWatch negative (%)||Negative outlook (%)||Negative outlook or CreditWatch negative (%)|
|Jan. 1, 2020||19.97||4.11||0.54||3.86||97.45||2644||0.00||1.63||17.36||19.00|
|Feb. 1, 2020||20.20||4.07||0.56||3.80||97.55||2645||(0.04)||1.33||17.66||18.79|
|March 1, 2020||20.16||4.13||0.63||3.76||95.83||2639||(0.07)||1.61||17.18||18.79|
|April 5, 2020||23.47||10.06||0.81||3.73||83.11||2857||(0.10)||10.71||24.37||35.08|
|May 3, 2020||25.40||12.31||1.61||2.38||86.73||2986||(0.23)||9.82||32.56||42.38|
|June 8, 2020||25.71||11.86||1.35||1.13||91.90||2960||(0.34)||8.42||36.34||44.76|
|July 6, 2020||24.82||11.41||1.53||1.39||91.14||2951||(0.39)||6.42||37.60||44.02|
|Aug. 2, 2020||24.35||10.66||1.57||1.48||92.60||2925||(0.55)||5.76||38.69||44.45|
|Sept. 7, 2020||24.36||10.10||1.39||1.56||94.41||2900||(0.66)||4.57||38.32||42.89|
|Sept. 13, 2020||24.56||10.11||1.38||1.57||94.64||2899||(0.66)||3.79||38.29||42.08|
|Note: The CLO Insights 2020 Index is an index of 410 U.S. BSL CLOs rated by S&P Global Ratings that will be reinvesting for all of 2020. O/C--Overcollateralization. SPWARF--S&P Global Ratings' weighted average rating factor.|
Average Loan Prices Continue To Increase In Q3, O/C Test Cushions Slower To Mend
Of the 410 reinvesting U.S. broadly syndicated collateralized loan obligations (BSL CLOs) within the Index, 72 have paid down their senior notes by 84 basis points, on average, due to interest diversion from failing overcollateralization (O/C) tests since COVID-19. Meanwhile, the junior O/C cushion improved slightly during the third quarter, up to 1.6% from 1.4% at the start of the quarter, but it is still well off the average cushion of 3.8% at the start of March (e.g., 53 CLOs within the Index continue to fail their junior O/C test). As we approach the end of the quarter and October payment dates, average loan prices of the exposures across the Index have increased to 94.6, just a point shy of the level at the start of March (95.8). O/C cushions in the Index will likely take more time (as will more senior note paydowns) to return to pre-COVID-19 levels due to a combination of par loss and the lower price of weaker credits (i.e., defaults and an excess of 'CCC' rated credits), unless there is par build in the portfolios.
U.S. CLO Rating Actions In Q3
Our COVID-19-related U.S. CLO rating actions to date have affected a total of 351 U.S. CLO transactions and consisted of:
- 129 affirmations at the current rating level that had previously been on CreditWatch with negative implications (i.e., no downgrades);
- 473 downgrades;
- Seven new CLO CreditWatch negative placements and four upgrades during the course of the review process; and
- Three ratings lowered to 'CC (sf)' from junior notes of amortizing CLO2.0s.
For more information, see "S&P Global Ratings COVID-19 Related Actions On U.S. CLO Ratings," published Sept. 17, 2020.
|U.S. CLO CreditWatch Resolutions And Non-CreditWatch Downgrades In Third-quarter 2020|
|Rating category at start of 3Q2020||Affirm||1-notch DG||2-notch DG||3-notch DG||4-notch DG||5-notch DG||Total||DG to spec-grade rating||DG to 'CCC' category||DG to 'CC'|
- Sector Averages Of Reinvesting U.S. BSL CLO Assets: COVID-19 Caused Significant Deterioration In Second-Quarter 2020, Aug. 31, 2020
- The Most Widely Referenced Corporate Obligors In Rated U.S. BSL CLOs: Second-Quarter 2020, July 9, 2020
- U.S. CLO Exposure To Negative Corporate Rating Actions (As Of June 28, 2020), June 30, 2020
- Sector Averages Of Reinvesting U.S. BSL CLO Assets: COVID-19-Related Corporate Downgrades Caused Significant Deterioration In First-Quarter 2020, May 18,2020
- 48 U.S. BSL CLO Ratings Placed On CreditWatch Negative; Total CreditWatch Negative Count Increases To 406, May 1, 2020
- 96 U.S. Reinvesting CLO Ratings Placed On CreditWatch Negative; Total CreditWatch Negative Count Increases To 358, April 27, 2020
- Ratings On 155 Classes From 113 U.S. Reinvesting CLOs Placed On Watch Negative, April 17, 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
- 25 Ratings On 15 U.S. CLO Transactions With Larger Exposures To Energy-Related Sectors Placed On Watch Negative, March 20, 2020
This report does not constitute a rating action.
|Primary Credit Analysts:||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;|
|Secondary Contact:||Deegant R Pandya, New York (1) 212-438-1289;|
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