(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.)
- U.S. and Canadian companies rated in the 'CCC' category and below saw net upgrades reach an all-time high in February, as 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 continued to improve, relieving some revenue pressure for oil and gas issuers rated 'CCC' and below.
- 'CCC' rated issuance in January and February remained stronger than previous years as investors remained optimistic about vaccines and stimulus measures and continued to search for yield, absent many lower-risk alternatives.
- U.S. 'B' and 'CCC' composite spreads tightened further in February to 420 and 661 basis points, respectively, suggesting that market conditions remain favorable.
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.
|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.|
|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;|
|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;|
|Secondary Contact:||Daniel Hu, FRM, New York + 1 (212) 438 2206;|
|Research Contributor:||Lyndon Fernandes, Mumbai;|
No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.
Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.
To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.
S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.
Any Passwords/user IDs issued by S&P to users are single user-dedicated and may ONLY be used by the individual to whom they have been assigned. No sharing of passwords/user IDs and no simultaneous access via the same password/user ID is permitted. To reprint, translate, or use the data or information other than as provided herein, contact S&P Global Ratings, Client Services, 55 Water Street, New York, NY 10041; (1) 212-438-7280 or by e-mail to: email@example.com.