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Credit Trends: Risky Credits: U.S. And Canadian Upgrades Outpace Downgrades In 'CCC' Category As Issuers Access Debt


Default, Transition, and Recovery: Distressed Exchanges Account For Over Half Of 2021 Defaults


Credit Trends: U.S. Corporate Bond Yields As Of April 7, 2021


Default, Transition, and Recovery: 2020 Annual Global Corporate Default And Rating Transition Study


Default, Transition, and Recovery: Avation PLC's Default Brings The European Tally For 2021 To Eight

Credit Trends: Risky Credits: U.S. And Canadian Upgrades Outpace Downgrades In 'CCC' Category As Issuers Access Debt

(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.)


On This Month's Front Burner

Upgrades outpace downgrades:   Upgrades outpaced downgrades in the 'CCC' rating category in four of the past five months, reflecting a combination of limited rating actions in the latter half of 2020, as well as improving credit quality for some issuers on the basis of better-than-expected recovery. Market access for lower rated issuers, although still limited, has also contributed to the increase in upgrades as some issuers have been able to refinance upcoming maturities and taken measures to lower costs and preserve cash. The greatest number of upgrades have come from the retail and restaurant sector--primarily those operating in home-related, sports and outdoors, and food segments who have benefited from the shift in consumer spending due to social distancing protocols. The downgrade ratio (defined as the number of 'CCC' category and below rated downgrades divided by the total rating actions) dropped to 33% in January, the lowest monthly downgrade ratio since 2012 (see chart 2).

'CCC' rated corporate bond issuance:   Markets remained optimistic in January as potential for higher stimulus from the U.S. government as well as positive news on COVID-19 vaccine developments drove speculative-grade bond issuance levels above previous years (see chart 3). U.S. and Canadian 'CCC' and below rated corporate bond issuance rose to $6.9 billion in January, more than three times levels in January 2020.

Defaults slowed in January:   There were only five defaults from the region in January--slightly below the tallies of the previous two years. The media and entertainment sector led defaults with two, followed by one each from the oil and gas, retail and restaurants, and high technology sectors.

Transitioning to 'CCC':   Transitions into the 'CCC' rating category from 'B-' remained at 0.3% in January 2020, whereas transitions into 'B-' from 'B' ratings ticked up to 1.4% after having briefly fallen to 0.8% in December (see chart 4). Nearly 80% of 'CCC' rated issuers have a negative outlook or CreditWatch placement with negative implications, suggesting more downgrades are to follow.

Spreads tighten in 'CCC' category:   U.S. 'CCC' and 'B' composite spreads dropped to pre-pandemic levels in December 2020. The 'CCC' spreads narrowed to 686 basis points (bps), the lowest value since 2019, whereas the 'B' spreads have remained roughly the same at 451 bps.

Bids recover:   The average bid of 'B' rated loans has ticked up since our last report to 99.1, as of Jan. 29, 2021, while the bid for 'CCC' rated loans has increased to 89.5.

CLO collateral actions:   After the COVID-19-driven credit turmoil of 2020, U.S. broadly syndicated collateralized loan obligation (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 before the pandemic.

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Table 1

Top 20 Rating Changes To 'CCC' From 'B-' By Debt Amount (YTD)
Rating date Issuer Country Sector Rating to Rating from Debt amount (Mil. $)

Finastra Ltd.

Cayman Islands High technology CCC+ B- 36,029

Bombardier Inc.

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.

United States Media and entertainment CCC+ B- 5,835

Hertz Global Holdings Inc.

United States Transportation CCC- B- 5,050

Nabors Industries Ltd.

Bermuda Oil and gas exploration and production CCC+ B- 3,725

GTT Communications Inc.

United States Telecommunications CCC+ B- 3,415

Advantage Solutions Inc.

United States Consumer products CCC+ B- 3,345

Viking Cruises Ltd. (Viking Holdings Ltd.)

United States Media and entertainment CCC+ B- 3,225

Varsity Brands Holding Co Inc.

United States Consumer products CCC+ B- 2,800
3/27/2020 CDS Group Canada Media and entertainment CCC- B- 2,745

Cengage Learning Holdings II Inc.

United States Media and entertainment CCC+ B- 2,580

McGraw-Hill Education Inc.

United States Media and entertainment CCC+ B- 2,125

Aveanna Healthcare LLC (Aveanna Healthcare Holdings Inc.)

United States Health care CCC+ B- 2,091

FXI Holdings Inc.

United States Chemicals, packaging, and environmental services CCC+ B- 2,075

Wesco Aircraft Holdings Inc. (Wolverine Intermediate Holding Corp.)

United States Aerospace and defense CCC+ B- 2,075

Helix Acquisition Holdings Inc.

United States Capital goods CCC+ B- 2,055

Life Time Inc.

United States Media and entertainment CCC+ B- 1,984

AVSC Holding Corp.

United States Media and entertainment CCC B- 1,980

Syniverse Holdings Inc.

United States Telecommunications CCC+ B- 1,922
Source: S&P Global Ratings. Data as of Dec. 31, 2020.

Table 2

Top 20 Rating Upgrades From 'CCC' Category
Rating date Issuer Country Sector Rating to Rating from Debt amount (Mil. $)

Uniti Group Inc.

U.S. Telecommunications B- CCC- 10,216

NGL Energy Partners L.P.

U.S. Utility B CCC+ 8,200

McGraw-Hill Education Inc.

U.S. Media and entertainment B- CCC+ 3,520

Petco Holdings Inc.

U.S. Retail/Restaurants B- CCC+ 3,200

CT Technologies Intermediate Holdings Inc.

U.S. Media and entertainment B- CCC+ 2,532

Kronos Acquisition Holdings Inc.

U.S. Consumer products B- CCC+ 2,290

Advantage Solutions Inc.

U.S. Consumer products B CCC+ 2,100

Urban One Inc.

U.S. Media and entertainment B- CCC 1,872

New Academy Holding Co. LLC

U.S. Retail/Restaurants B- CCC+ 1,825

LTI Holdings Inc.

U.S. Capital goods B- CCC+ 1,740

Comstock Resources Inc.

U.S. Oil and gas exploration and production B- CCC+ 1,250

Granite US Holdings Corp.

U.S. Capital goods B- CCC+ 1,200

Badger Finance LLC (Badger Intermediate Holdings LLC)

U.S. Consumer products B- CCC 1,172

Jo-Ann Stores Holdings Inc.

U.S. Retail/Restaurants B- CCC 1,130

Gogo Inc.

U.S. Telecommunications B- CCC+ 1,125

Rayonier Advanced Materials Inc.

U.S. Forest products and building materials B- CCC+ 1,050

Affinity Gaming

U.S. Media and entertainment B- CCC+ 970

The Fresh Market Inc.

U.S. Retail/Restaurants B- CCC+ 800

DriveTime Automotive Group Inc.

U.S. Financial institutions B- CCC+ 800

LD Intermediate Holdings Inc.

U.S. High technology B- CCC+ 680
Source: S&P Global Ratings. Data as of Jan. 31, 2021.

Related Research

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;

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