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Quote Book: Gleaning Sector Trends From Rating Actions For BSL CLO Market Participants (As Of Nov. 24, 2020)

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Quote Book: Gleaning Sector Trends From Rating Actions For BSL CLO Market Participants (As Of Nov. 24, 2020)

U.S. broadly syndicated collateralized loan obligations (CLOs) are backed primarily by broadly syndicated loans (BSLs) issued by U.S. companies. The CLO group within S&P Global Ratings' U.S. Structured Finance department believes that a review of the recent rating action reports published by the U.S. Corporate Ratings group can provide insights on developing sector trends. Accordingly, we have compiled a list of key quotes (lightly edited) from recently published Corporate Ratings reports on issuers with loans held in BSL CLOs (see table 1). We note that the quotes highlighted below are company specific and, therefore, may not apply to every issuer within a given sector. Nonetheless, it is our view that this at-a-glance snapshot view of the sector will add value to CLO market participants.

Table 1

Key Quotes
Rating
Issuer GIC sector To From Quotes from rating actions this past week

Avis Budget Car Rental LLC

Road and rail B+/Negative B+/Watch Neg "We expect the company's credit metrics to be weak in 2020 due to the sharp decline in airline travel related to the impact of the COVID-19. However, the company has benefited from substantial cost reductions and strong used-car prices that have reduced its depreciation expense." "We don't expect passenger travel to begin to recover until 2021. We expect strong used-car prices to moderate somewhat in 2021."

IRB Holding Corp.

Hotels, restaurants, and leisure B/Positive B/Watch Pos "We believe QSR will continue to outperform casual dining and fast-casual in the near term. In our view, the pandemic-related disruption does not significantly affect Inspire's consolidated performance because of the company's diversified brand portfolio."

Live Nation Entertainment Inc.

Entertainment B/Negative B+/Negative "While the timing and pace of a pandemic recovery are uncertain, we believe a return to large-scale live music events is likely by mid-2021." "However, we expect a resumption of live music events will vary broadly by geography, local social distancing regulations, event type, and audience demographics. We expect outdoor venues like festivals and amphitheaters to return before indoor venues such as arena tours and concert halls. In addition, while we expect shows to return at half-capacity or greater, we anticipate that social distancing measures will likely restrict capacity as audiences return to live events."

EWT Holdings III Corp

Machinery B+/Stable B/Stable "We believe demand will remain resilient over the next year, allowing the company to sustain improved credit metrics. Water is an essential aspect of many industrial processes, including microelectronics, pharmaceutical, and biotechnology, which will likely continue to grow in 2021." "We believe that the COVID-19 pandemic is accelerating the trend toward an outsourced model of water treatment and purification. Customers increasingly prefer remote 24/7 monitoring and preventative maintenance of the water system because this solution offers higher up-time with fewer visits from external parties."

Leslie's Poolmart Inc.

Specialty retail B+/Stable B/Watch Pos "Leslie's performance has improved during the coronavirus pandemic due to consumers' elevated focus on their homes." "In our view, Leslie's has benefited substantially from consumers' increased time spent at home and the reallocation of their discretionary spending away from experiences and travel due to the pandemic. This has led to dramatically elevated usage of residential pools as well as a faster pace of above- and in-ground pool installations, which we view as directly supporting the heightened demand for pool maintenance products."

Pharmaceutical Product Development LLC

Life sciences tools and services BB-/Stable B+/Positive "The CRO industry is very fragmented and dominated by a small number of large, full-service global CROs in addition to several hundred smaller providers that compete for more specialty services. We think PPD will continue to benefit from the industry's favorable growth prospects and estimate that the CRO industry will expand by a mid- to high-single-digit percent range on a normalized basis fueled by the healthy biotech funding environment and increased outsourcing trends." "CROs are exposed to cancellation risk as well as scrutiny regarding drug pricing. Cancellation risk is a major concern for all CROs."

SIWF Holdings Inc.

Household durables B/Stable B-/Negative "We believe increased consumer investment in their dwellings due to stay-at-home measures and a broader adoption of work-from-home arrangements, as well as favorable housing market trends will drive strong demand for residential window coverings. In September 2020, S&P Global economists noted that various housing market indicators--including sales of new and existing homes, pending sales, and building permits--reached levels not seen since at least 13 years prior. Additionally, Euromonitor estimates that the North America window coverings market, in which Springs is one of the leading players, will expand at a compound annual growth rate of about 5.5% over the next two years."

Propulsion Acquisition LLC

Commercial services and supplies CCC+/Stable CCC+/Negative "Aircraft manufacturers have reduced build rates and spending significantly, likely including Belcan's engineering and recruiting services. We also expect the company's work with automotive and industrial customers to be affected due to lower demand and production slowdowns. The company's defense and government work, including that of Telesis, should be relatively unaffected, even with the change in the U.S. presidential administration."

American Axle & Manufacturing Holdings Inc.

Auto components B+/Positive B+/Watch Neg "The company showed strong profitability and cash flow generation in third-quarter 2020 due to the ongoing recovery in light-vehicle demand." "U.S. light-vehicle demand also recovered as the quarter progressed with sales falling year over year about 14% in July, 11% in August, and about 5% in September. In October, the decline slowed to about 3%, suggesting demand continues to normalize."

The Hillman Group Inc.

Trading companies and distributors B-/Stable B-/Negative "The company's Fastening, Hardware, and Personal Protective Solutions segment grew about 20% for the nine months ended Sept. 30, over the same period a year ago because of stronger repair and remodeling demand driven by a shift in spending away from travel and leisure, consumers spending more time at home, and higher demand for COVID-19 protection products."

OQ Chemicals Holding Drei GmbH

Chemicals B-/Stable B/Negative "In line with our previous expectations, the effects of the pandemic and resulting recession are weighing on the operating performance of OQ Chemicals. It has a relatively high exposure to the eurozone and the U.S., as well as to cyclical industries like construction and automotive, which are suffering from declining demand this year."

Avast Holding B.V.

Software BB+/Stable BB/Stable "At the same time, despite the favorable industry trends, performance at Avast's mobile and small and midsize enterprise (SME) divisions has been subdued." "Avast's mobile segment relies heavily on the carrier distribution model, unlike its direct business for its desktop division. It therefore took a hit when the company lost contracts with certain U.S. carriers. Meanwhile, the SME segment still hasn't recovered from exiting certain countries."
GIC--Global industry classification. QSR--Quick service restaurant. CRO--Contract research organization.

We are also including a list of all rating actions taken on issuers with loans held in U.S. BSL CLOs over the past two weeks (see table 2). For each issuer, we include the rank as of the third quarter to give an indication of how widely held the issuer's loans are across the U.S. BSL CLOs rated by S&P Global Ratings. Collectively, U.S. BSL CLOs have had exposure to over 1,500 parent issuers operating across several different global industry classification (GIC) sectors. (For the list of top 250 issuers as of third-quarter 2020, see "The Most Widely Referenced Corporate Obligors In Rated U.S. BSL CLOs: Third-Quarter 2020," published Oct. 2, 2020.)

Table 2

Rating Actions Over Past Two Weeks
On corporate issuers with loans held in BSL CLOs
Rating
Rating action date Issuer GIC sector To From Rating action PR Rank within U.S. BSL CLOs As of third-quarter 2020
11/9/2020

American Axle & Manufacturing Holdings Inc.

Auto components B+/Positive B+/Watch Neg Affirmed; Off Watch Neg Link 272
11/10/2020

The Hillman Group Inc.

Trading companies and distributors B-/Stable B-/Negative Affirmed Link 372
11/10/2020

Mavis Tire Express Services Corp.

Specialty retail B-/Stable B-/Negative Affirmed Link 266
11/10/2020

Priority Holdings LLC

IT services CCC+/Stable CCC+/Negative Affirmed Link 1,160
11/10/2020

OQ Chemicals Holding Drei GmbH

Chemicals B-/Stable B/Negative Downgrade Link 510
11/10/2020

Peabody Energy Corp.

Oil, gas and, consumable fuels CCC-/Watch Neg CCC+/Negative Downgrade Link 809
11/10/2020

Bojangles' Inc.

Hotels, restaurants, and leisure NR B/Negative Withdrawal Link 1,135
11/10/2020

Capstone Logistics Acquisition Inc.

Air freight and logistics NR B-/Stable Withdrawal Link 1,212
11/11/2020

IBC Capital Ltd.

Commercial services and supplies B/Stable B/Negative Affirmed Link 517
11/12/2020

Avis Budget Car Rental LLC

Road and rail B+/Negative B+/Watch Neg Affirmed; Off Watch Neg Link 564
11/12/2020

The Container Store Inc.

Specialty retail B/Stable B-/Stable Upgrade Link 847
11/12/2020

SIWF Holdings Inc.

Household durables B/Stable B-/Negative Upgrade Link 419
11/12/2020

IRB Holding Corp.

Hotels, restaurants, and leisure B/Positive B/Watch Pos Affirmed; Off Watch Neg Link 56
11/12/2020

Tenneco Inc.

Auto components B/Positive B/Negative Affirmed Link 170
11/16/2020

Playa Hotels & Resorts N.V.

Hotels, restaurants, and leisure CCC+/Negative B-/Negative Downgrade Link 504
11/16/2020

Live Nation Entertainment Inc.

Entertainment B/Negative B+/Negative Downgrade Link 786
11/17/2020

Foundation Building Materials Holding Company LLC

Trading companies and distributors B+/Watch Neg B+/Stable Placed on Watch Neg Link 614
11/17/2020

EWT Holdings III Corp

Machinery B+/Stable B/Stable Upgrade Link 714
11/17/2020

HD Supply Inc.

Trading companies and distributors BB+/Watch Pos BB+/Stable Placed on Watch Pos Link 714
11/17/2020

Curvature Inc.

IT services NR CCC/Watch Pos Withdrawal Link 1,238
11/17/2020

Propulsion Acquisition LLC

Commercial services and supplies CCC+/Stable CCC+/Negative Affirmed Link 478
11/18/2020

Sotera Health Holdings LLC

Life sciences tools and services B/Watch Pos B/Stable Placed on Watch Pos Link 161
11/18/2020

Summit Midstream Partners Holdings LLC

Oil, gas, and consumable fuels NR CC/Negative Withdrawal Link 1,125
11/19/2020

Revlon Consumer Products Corp.

Personal products SD CC/Negative Downgrade Link 382
11/19/2020

Leslie's Poolmart Inc.

Specialty retail B+/Stable B/Watch Pos Upgrade Link 516
11/20/2020

Avast Holding B.V.

Software BB+/Stable BB/Stable Upgrade Link 1,094
11/20/2020

Pharmaceutical Product Development LLC

Life sciences tools and services BB-/Stable B+/Positive Upgrade Link 83
11/20/2020

SIRVA Inc.

Road and rail CCC+/Negative CCC+/Watch Neg Affirmed; Off Watch Neg Link 937
BSL--Broadly syndicated loan. CLO--Collateralized loan obligation. GIC--Global industry classification. NR--Not rated. SD--Selective default. PR--Press release.

This report does not constitute a rating action.

Primary Credit Analysts:Daniel Hu, FRM, New York + 1 (212) 438 2206;
daniel.hu@spglobal.com
Robert E Schulz, CFA, New York (1) 212-438-7808;
robert.schulz@spglobal.com
Secondary Contact:Bryan A Ayala, New York + 1 (212) 438 9012;
bryan.ayala@spglobal.com
CLO Sector Lead:Stephen A Anderberg, New York (1) 212-438-8991;
stephen.anderberg@spglobal.com
Analytical Manager, Leveraged Finance:Ramki Muthukrishnan, New York (1) 212-438-1384;
ramki.muthukrishnan@spglobal.com

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