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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