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COMMENTS

Credit Trends: Risky Credits: Net Upgrades And Higher Oil Prices Offer Some Relief To The Weakest-Rated Companies In The U.S. And Canada

COMMENTS

Credit Trends: U.S. Corporate Rating Actions Show Post-COVID-19 Credit Recovery Has Begun

COMMENTS

Default, Transition, and Recovery: 2021 Corporate Default Tally Climbs To 37

COMMENTS

Credit Trends: U.S. Corporate Defaults: Variations, Forecasts, And The Implications For CLOs

COMMENTS

Credit Trends: Global Financing Conditions: Bond Issuance Could Decline 2.25% In 2021 To $8.2 Trillion


Credit Trends: Risky Credits: Net Upgrades And Higher Oil Prices Offer Some Relief To The Weakest-Rated Companies In The U.S. And Canada

(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.)

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On This Month's Front Burner

Net upgrades hit all-time high:   The number of net upgrades among 'CCC' category U.S. and Canadian companies (upgrades from the 'CCC' category and below minus downgrades into the 'CCC' category) hit an all-time high of seven in February as credit quality continued to improve for some issuers in sectors experiencing better-than-expected recoveries. During February, there were eight upgrades and only one downgrade, with five upgrades in the media and entertainment sector as issuers were able to refinance, extend upcoming maturities, or find ways to adjust to the new normal and improve operating performance (see chart 1). The number of 'CCC' category ratings on U.S. and Canadian companies declined for the sixth consecutive month to 219 as of Feb. 28, 2021.

Oil prices continue to improve:   Oil prices improved again in February, relieving some revenue pressure for oil and gas issuers rated 'CCC' and below. There was one U.S.-based exploration and production upgrade in February. Meanwhile, S&P Global Ratings revised its 2021 and 2022 oil price assumptions to $55 from $45 for 2021 and 2022.

'CCC' rated corporate bond issuance:   Markets remained optimistic in February as a third vaccine was authorized for emergency use in the U.S. by the Food and Drug Administration, amid the potential for additional stimulus from the U.S. government. Speculative-grade (rated 'BB+' or lower) bond issuance was higher in February 2021 than at that point in 2019 and 2020 (see chart 3). U.S. and Canadian corporate bond issuance rated 'CCC' and below rose to $10.9 billion in February, 60% higher than the same time last year.

Defaults slowed in February:   There were only four defaults from the region in February--slightly below the tallies of the previous two years. There was one default each in retail and restaurants; metals, mining, and steel; consumer products; and capital goods.

Transitioning to 'CCC':   Transitions into the 'CCC' rating category from 'B-' remained at 0.3% in February 2021, whereas transitions to 'B-' from 'B' dropped to 0.6%. Nearly 80% of 'CCC' rated issuers have negative outlooks or CreditWatch placements with negative implications, suggesting more downgrades will follow.

Spreads tighten in 'CCC' category:   The 'CCC' composite spread narrowed to 661 basis points (bps) as of Feb. 28, the lowest value since 2019, whereas 'B' spreads have tightened to 420 bps.

Bids recover:   The average bid of 'B' rated loans has ticked up since our last report to 99.28 as of March 2, while the bid for 'CCC' rated loans has increased to 90.93.

CLO collateral actions:   All of the credit-related metrics we track for the collateralized loan obligations (CLOs) in our index ended 2020 in worse shape than they started, which is not surprising given the economic impact of the COVID-19 pandemic and related shutdowns. However, most of the metrics we calculated as part of the index experienced an inflection during 2020, deteriorating significantly in the spring before gradually improving after hitting bottom at some point later in the spring or during the summer months.

After the COVID-19-driven credit turmoil of 2020, U.S. broadly syndicated CLO portfolios are starting 2021 with 'CCC' buckets that are substantially lower than their 2020 peak (more than 12% in May 2020), if still significantly 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. $)
4/15/2020 Finastra Ltd. Cayman Islands High technology CCC+ B- 36,029
3/24/2020 Bombardier Inc. Canada Aerospace and defense CCC+ B- 9,287
4/17/2020 First Quantum Minerals Ltd Canada Metals, mining, and steel CCC+ B- 6,000
7/21/2020 Clear Channel Outdoor Holdings Inc. United States Media and entertainment CCC+ B- 5,835
4/27/2020 Hertz Global Holdings Inc. United States Transportation CCC- B- 5,050
5/14/2020 Nabors Industries Ltd Bermuda Oil and gas exploration and production CCC+ B- 3,725
4/10/2020 GTT Communications, Inc. United States Telecommunications CCC+ B- 3,415
4/8/2020 Advantage Solutions Inc. United States Consumer products CCC+ B- 3,345
1/27/2021 Viking Cruises Ltd. (Viking Holdings Ltd) United States Media and entertainment CCC+ B- 3,225
4/8/2020 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
9/4/2020 Cengage Learning Holdings II Inc. United States Media and entertainment CCC+ B- 2,580
9/4/2020 McGraw-Hill Education, Inc. United States Media and entertainment CCC+ B- 2,125
1/3/2020 Aveanna Healthcare LLC (Aveanna Healthcare Holdings Inc.) United States Health care CCC+ B- 2,091
4/23/2020 FXI Holdings, Inc. United States Chemicals, packaging, and environmental services CCC+ B- 2,075
8/19/2020 Wesco Aircraft Holdings Inc. (Wolverine Intermediate Holding Corp.) United States Aerospace and defense CCC+ B- 2,075
4/8/2020 Helix Acquisition Holdings, Inc. United States Capital goods CCC+ B- 2,055
4/17/2020 Life Time, Inc. United States Media and entertainment CCC+ B- 1,984
6/12/2020 AVSC Holding Corp. United States Media and entertainment CCC B- 1,980
4/23/2020 Syniverse Holdings, Inc. United States Telecommunications CCC+ B- 1,922
Data as of Dec. 31, 2020. Source: S&P Global Ratings.

Table 2

Top 20 Rating Upgrades From 'CCC' Category
Rating date Issuer Country Sector Rating to Rating from Debt amount (Mil. $)
10/7/2020 Uniti Group Inc. United States Telecommunications B- CCC- 10,216
1/21/2021 NGL Energy Partners LP United States Utility B CCC+ 8,200
12/15/2020 McGraw-Hill Education, Inc. United States Media and entertainment B- CCC+ 3,520
1/21/2021 Petco Holdings Inc. United States Retail/Restaurants B- CCC+ 3,200
2/10/2021 Cengage Learning Holdings II Inc. United States Media and entertainment B- CCC+ 2,555
11/30/2020 CT Technologies Intermediate Holdings Inc. United States Media and entertainment B- CCC+ 2,532
7/21/2020 Kronos Acquisition Holdings Inc. United States Consumer products B- CCC+ 2,290
10/30/2020 Advantage Solutions Inc. United States Consumer products B CCC+ 2,100
1/7/2021 Urban One, Inc. United States Media and entertainment B- CCC 1,872
9/25/2020 New Academy Holding Co. LLC United States Retail/Restaurants B- CCC+ 1,825
8/31/2020 LTI Holdings, Inc. United States Capital goods B- CCC+ 1,740
2/18/2021 Mohegan Tribal Gaming Authority United States Media and entertainment B- CCC+ 1,696
6/23/2020 Comstock Resources Inc. United States Oil and gas exploration and production B- CCC+ 1,250
11/24/2020 Granite US Holdings Corp United States Capital goods B- CCC+ 1,200
2/5/2021 Northern Oil and Gas Inc. United States Oil and gas exploration and production B- CCC+ 1,194
9/11/2020 Badger Finance, LLC (Badger Intermediate Holdings LLC) United States Consumer products B- CCC 1,172
12/10/2020 Jo-Ann Stores Holdings Inc United States Retail/Restaurants B- CCC 1,130
12/7/2020 Gogo Inc. United States Telecommunications B- CCC+ 1,125
12/23/2020 Rayonier Advanced Materials Inc. United States Forest products and building materials B- CCC+ 1,050
12/15/2020 Affinity Gaming United States Media and entertainment B- CCC+ 970
Data as of Feb. 28, 2021. Source: S&P Global Ratings.

This report does not constitute a rating action.

Credit Markets Research:Nicole Serino, New York + 1 (212) 438 1396;
nicole.serino@spglobal.com
Sudeep K Kesh, New York + 1 (212) 438 7982;
sudeep.kesh@spglobal.com
Leveraged Finance:Robert E Schulz, CFA, New York + 1 (212) 438 7808;
robert.schulz@spglobal.com
Ramki Muthukrishnan, New York + 1 (212) 438 1384;
ramki.muthukrishnan@spglobal.com
Secondary Contact:Daniel Hu, FRM, New York + 1 (212) 438 2206;
daniel.hu@spglobal.com
Research Contributor:Lyndon Fernandes, Mumbai;
lyndon.fernandes@spglobal.com

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