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SF Credit Brief: CLO Insights 2021 U.S. MM Index: Stable Performance Continues In First Quarter, As CDO Monitor Metrics Reveal Portfolio Differences

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SF Credit Brief: CLO Insights 2021 U.S. MM Index: Stable Performance Continues In First Quarter, As CDO Monitor Metrics Reveal Portfolio Differences

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Overall, middle-market (MM) collateralized loan obligations (CLOs) experienced another stable quarter in the first quarter of 2021, with many transactions reporting improved overcollateralization (O/C) ratios and par balances and reduced exposure to defaulted loans. Credit metrics for MM CLO portfolios have also remained stable. (Note that credit estimates that have hit their one-year expiration date are generally treated as 'CCC-' in our CLO analysis and in table 1 below.)

Table 1

CLO MM Index Metrics (CLO Insights 2021 U.S. MM Index)
'B-' (%) 'CCC' bucket (%) Nonperforming category (%) SPWARF Jr. O/C cushion (%) Par (%) % credit estimated
Start 66.05 23.34 0.87 3926 5.31 0.00 73.65
2/1/2021 65.78 23.96 0.80 3942 5.53 (0.03) 72.79
3/1/2021 64.86 25.14 0.69 3956 5.62 (0.00) 72.13
4/1/2021 64.57 25.50 0.65 3968 5.57 0.04 71.60
5/1/2021 65.84 24.71 0.66 3964 5.79 0.08 71.58
MM CLO--Middle-market collateralized loan obligation. SPWARF--S&P Global Ratings' weighted average rating factor. O/C--Overcollateralization.

Monitor Benchmarks For First-Quarter 2021 Published

On May 6, 2021, we published our first-quarter 2021 CDO Monitor performance benchmarks for MM and broadly syndicated loan (BSL) CLO portfolios (see "CDO Monitor Benchmarks For U.S. CLOs: First-Quarter 2021," published May 6, 2021). CDO Monitor is used by CLO managers and trustees to determine compliance with the Standard & Poor's CDO Monitor Test, and the associated CDO Monitor portfolio benchmarks can be used to highlight differences between CLO portfolios from different managers. The benchmarks can also be used to gauge differences between MM and BSL CLO portfolios, as we've done in table 2 below.

Table 2

Average First-Quarter 2021 Monitor Benchmarks For Reinvesting U.S. CLOs
BSL CLOs MM CLOs
S&P Global Ratings' weighted average rating factor (SPWARF) 2722 3934
Default rate dispersion 818 645
Obligor diversity measure 202.93 70.23
Industry diversity measure 23.86 14.45
Regional diversity measure 1.18 1.02
Weighted average life 4.86 3.6
CLO--Collateralized loan obligation. BSL--Broadly syndicated loan. MM--Middle market.

Relative to reinvesting BSL CLO portfolios, the average reinvesting middle-market CLO portfolio has:

  • A higher average S&P Global Ratings' weighted average rating factor (SPWARF);
  • A shorter average tenor; and
  • Lower portfolio diversity (fewer obligors, industries, and regions in a given portfolio).

For the definition of each benchmark, see "S&P Global Ratings' Updated Assumptions For CDO Monitor Non-Model Version," published June 21, 2019.

There Is Less Overlap Between MM CLO Portfolios

While the average diversity within the average MM CLO portfolio is considerably lower than in the average BSL CLO portfolio, across CLO managers, the MM CLO portfolios actually have less overlap. Given MM loans are generally not broadly syndicated, many of the exposures held within MM CLO portfolios are unique to a given CLO manager. This is part of the reason MM CLO portfolios are less diverse their BSL counterparts (as noted above), but it also means that MM CLOs have less overlap between CLO portfolios from different managers than do the BSL CLOs.

Table 3
% Of AUM Across Middle-Market CLOs
As Of March 31, 2021
Manager Issuers unique to manager Software issuers Healthcare providers and services issuers Largest industry by AUM % AUM Of largest industry
Deerpath Capital Management 74.41 10.58 18.69 Healthcare providers and services 18.69
Brightwood Capital Advisors 71.89 5.33 19.37 Commercial services and supplies 20.33
FS KKR Capital 61.96 11.55 6.07 Software 11.55
Fortress Investment Group 61.45 11.97 5.78 Capital markets 12.16
GC Investment Management 60.56 25.35 13.18 Software 25.35
Pennantpark Investment 59.12 8.22 1.35 Professional services 11.79
Tennenbaum Capital Partners 57.15 23.87 1.40 Software 23.87
AllianceBernstein 50.39 32.54 14.30 Software 32.54
Midcap Financial Services Capital Management 50.30 6.44 10.60 Healthcare providers and services 10.60
Guggenheim Partners Investment Management 43.84 11.44 4.75 Software 11.44
Maranon Management 43.83 4.71 11.20 IT services 13.09
Garrison Funding 41.95 11.93 1.80 Software 11.93
MCF Capital Management 39.00 8.86 12.74 Healthcare providers and services 12.74
Barings 39.00 11.55 4.57 Software 11.55
NXT Capital Investment Advisers 38.40 5.66 15.89 Healthcare providers and services 15.89
Owl Rock Capital Corporation 37.56 19.05 5.29 Software 19.05
Bain Capital Credit 35.88 9.59 5.09 Commercial services and supplies 9.76
Monroe Capital Management 34.47 9.15 7.38 Media 9.65
BMO Asset Management 31.77 5.69 13.48 Healthcare providers and services 13.48
Teachers Advisors 31.26 6.05 10.59 Commercial services and supplies 11.25
Ares Management 29.81 12.69 10.68 Software 12.69
GSO/Blackstone Debt Funds Management 26.99 10.24 2.81 Software 10.24
Audax Management Company 25.82 22.03 7.71 Software 22.03
Antares Capital Advisers 25.22 8.52 7.39 Software 8.52
Carlyle Investment Management 24.10 11.49 10.43 Professional services 12.18
Vista Credit Opportunities Management 19.85 63.99 0.00 Software 63.99
KCAP Financial 17.72 10.28 13.06 Healthcare providers and services 13.06
Middle Market Credit Fund 7.46 14.69 8.80 Software 14.69
NewStar Financial 6.45 4.58 7.90 Insurance 8.40
First Eagle Alternative Credit, LLC 3.04 5.70 6.80 Insurance 13.36
AUM--Assets under management.

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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