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SF Credit Brief: Introducing The CLO Insights 2021 U.S. BSL Index

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SF Credit Brief: Introducing The CLO Insights 2021 U.S. BSL Index

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Our new CLO Insights 2021 U.S. BSL Index (the BSL index) is an index of 475 S&P Global Ratings-rated U.S. broadly syndicated loan collateralized loan obligations (BSL CLOs) that began issuing trustee reports at the start of 2021 and, per their transaction documents, are scheduled to continue reinvesting for the entirety of 2021. Static CLO transactions have been excluded. The 2021 index is the successor to last year's CLO Insights 2020 Index (which included CLOs scheduled to reinvest through 2020), and it includes CLOs across various vintages issued by 114 different managers. We plan to provide monthly updates of key metrics based off this index for the remainder of 2021.

Table 1

CLO BSL Index Metrics (CLO Insights 2021 U.S. BSL Index)
As of date 'B-' (%) 'CCC' category (%) Nonperforming category (%) SPWARF Watch negative (%) Negative outlook (%) Weighted avg. price of portfolio Jr. O/C cushion (%) Par change (%) Turnover (%)
Jan. 1, 2021 25.29 7.64 0.76 2799 1.62 32.43 97.48 3.05 0.00 0.00
Feb. 1, 2021 25.21 7.79 0.53 2789 0.85 32.11 98.36 3.12 (0.13) 4.02
BSL CLO--Broadly syndicated loan collateralized loan obligation. SPWARF--S&P Global Ratings' weighted average rating factor. O/C--Overcollateralization.

In addition to the metrics we reported on last year, we're introducing a new collateral turnover metric, which measures the proportion of the average BSL CLO portfolio that has changed since the start of 2021. The turnover per deal is calculated at the loan level as of the start of 2021, and then averaged across the index.

U.S. BSL CLOs Begin The Year With Record Levels Of 'B-' And Higher 'CCC' Buckets

After the COVID-19-driven credit turmoil of 2020, U.S. BSL CLO portfolios are starting a new year with record levels of loans from 'B-' rated obligors and 'CCC' buckets that are substantially lower than their 2020 peak (more than 12% in May 2020), but still a lot higher than they were pre-pandemic. The CLO Insights 2020 Index (from last year) experienced an average decline in par of about 0.99% as the CLO managers lost par from de-risking their portfolios (sold weaker credits for stronger credits) and suffered losses from defaults or restructurings. For context, the CLO Insights 2019 Index (from two years ago) experienced an average decline in par of just 29 basis points (bps) for all of 2019.

Table 2

Year-End U.S. BSL CLO Portfolio Exposures To 'B-', 'CCC' Category, And Nonperforming
'B-' 'CCC' Nonperforming
2007YE 9.17 3.52 1.66
2008YE 12.00 8.19 4.01
2009YE 12.75 8.84 6.04
2010YE 10.89 5.42 2.41
2011YE 9.54 5.35 2.03
2012YE 7.07 4.64 3.21
2013YE 7.44 3.37 1.29
2014YE 7.43 1.73 1.36
2015YE 10.11 3.49 1.58
2016YE 9.83 5.86 1.55
2017YE 12.80 5.00 1.21
2018YE 14.85 4.60 0.61
2019YE 20.00 4.77 0.73
2020YE 24.89 8.48 1.03
BSL CLO--Broadly syndicated loan collateralized loan obligation. YE--Year end.

January 2021: Downgrade On Widely-Held Issuer May Reduce O/C Cushion For Some Deals

Loan prices improved again in January 2021, continuing this trend since they dropped precipitously in the early days of the pandemic and the related economic shutdowns, while the proportion of loans in CLO portfolios from companies with ratings on CreditWatch with negative implications has declined to less than 1%. Trustee overcollateralization (O/C) cushions marginally improved as well during the start of the year.

On Jan. 27, 2021, the rating on Diamond Sports Holding LLC (Diamond Sports) was lowered to 'CCC+' from 'BB-' and removed from CreditWatch negative, as we no longer expect Sinclair Broadcast Group Inc. to provide financial support to it; as a result, we de-linked our issuer credit rating on the company from our issuer credit rating on Sinclair (see "Diamond Sports Holdings LLC Rating De-Linked From Parent, Lowered To 'CCC+'; Outlook Negative," published Jan. 27, 2021). Loans to Sinclair Broadcast Group Inc. (including Diamond Sports) are among the most widely held obligations across U.S. BSL CLOs, ranking seventh on our most recently published "Top 250" list (see "The Most Widely Referenced Corporate Obligors In Rated U.S. BSL CLOs: Fourth-Quarter 2020," published Jan. 7, 2021). The recent downgrade on Diamond Sports is part of the reason the CCC' bucket of the BSL index increased in January. As this widely held loan is now part of CLO 'CCC' buckets, junior O/C cushions may be marginally negatively affected for some deals. The senior loan from Diamond Sports Holding LLC represents just over $1 billion, or 0.35% of the assets under management across S&P Global Ratings-rated U.S. BSL CLOs.

This report does not constitute a rating action.

Primary Credit Analysts:Daniel Hu, FRM, New York + 1 (212) 438 2206;
daniel.hu@spglobal.com
Stephen A Anderberg, New York + (212) 438-8991;
stephen.anderberg@spglobal.com
Secondary Contact:Deegant R Pandya, New York + 1 (212) 438 1289;
deegant.pandya@spglobal.com

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