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Credit Trends: Risky Credits: Upgrade Potential Is Highest Among U.S. Media And Entertainment 'CCC' Issuers


Credit Trends: Global Financing Conditions: Bond Issuance Is Expected To Finish The Year Close To 2020 Levels; Drop 2% Next Year


Credit Trends: Risky Credits: North American ‘CCC’ Rated Population Is Improving, But Still Has A Long Way To Go


Default, Transition, and Recovery: China-Based Sinic Holdings' Missed Bond Payment Pushes The 2021 Global Corporate Default Tally To 63


Credit Trends: U.S. Corporate Bond Yields As Of Oct. 20, 2021

Credit Trends: Risky Credits: Upgrade Potential Is Highest Among U.S. Media And Entertainment 'CCC' Issuers

(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

Net upgrades are highest in the 'CCC' rating category  Upgrades far outpaced downgrades in the 'CCC' rating category for the eighth consecutive month as 'CCC' net upgrades (upgrades minus downgrades) remain at the highest level among all other rating categories (see chart 1). Although recovering, the number of 'CCC' rated issuers remains higher than it was pre-pandemic (137), as downgrades into the rating category in 2020 still outweigh the upgrades. In August 2021, the upgrades out of the 'CCC' category were distributed across sectors, one each from consumer products, automotive, retail/restaurants and media and entertainment. The downgrade rate (the number of 'CCC' rated actions and below downgrades divided by the total rating actions to and from the 'CCC' rating category) ticked up to 42% in August (see chart 2).

Media and entertainment has most room for upgrades  By sector, media and entertainment led upgrades last month as two U.S. gaming operators (Downstream Development Authority and Saracen Development LLC) were upgraded out of the 'CCC' rating category. With the highest number of 'CCC' issuers either on CreditWatch positive or with a positive outlook (with four), the sector holds the highest upgrade potential. U.S. advertising in particular has been leading the recovery of the media industry so far in 2021 where a rise in revenue has been stronger than expected (see "U.S. Media And Entertainment Industry Check In," Sept. 1, 2021).

'CCC' issuance is 2.2x 2020 year-to-date and 'B/B-' is 2.0x  After a strong start to the year, issuance slowed in the past two months, bringing the ratio for issuance so far in 2021 to same-date 2020 to 2.2 from 2.4 for 'CCC and below', and to 1.9 from 2.4 for 'B/B-' versus the end of June 2021. But these levels are still significantly higher than issuances in 2019 as investors' hunt for yield pushed speculative-grade bond, leveraged loan, and collateralized obligation totals to multiyear, and in some cases, record-breaking first-half totals in 2021 (see "Global Financing Conditions: Bond Issuance Remains Strong Despite An Expected Modest Contraction," July 26, 2021).

Defaults continue to slow  There were only five defaults from the region in July and August. With these defaults, the North American total so far 2021 is 32, less than a third of 2020's year-to date total of 117. The U.S. speculative grade default rate fell to 3.1% in July 2021 and is expected to fall to 2.5% by June 2022. (see "U.S. Corporate Defaults Through August Mark A Seven-Year Low," Sept. 3, 2021, and "The U.S. Speculative-Grade Corporate Default Rate Could Fall To 2.5% By June 2022," Aug. 20, 2021).

Transitioning to 'CCC' ticks up, but remains low  Transition into the 'CCC' and 'B-' categories ticked up slightly in August 2021, but remained low at only 0.7% (versus the long-term weighted average of 2.2%), and there were no transitions into 'B-' from 'B' ratings (compared with the 1.3% long-term weighted average). The negative bias--issuers with a negative outlook or CreditWatch placement with negative implications--of 'CCC' rated issuers has lowered to an all-time low of 65%. The negative bias for 'B-' rated issuers has also dropped to its all-time low of 13.7% in August 2021.

Spreads widened in August but remain extremely tight  U.S. 'CCC' and 'B' composite spreads were largely steady in July and August 2021 with 'CCC' spreads widening slightly to 621 basis points (bps) and the 'B' spread also widening to 404 bps (over two months) in tandem with slowing issuance.

Bids recover  The average bid of 'B' rated loans remained mostly steady since our last report at 99.08, as of Aug. 31, 2021, while the bid for 'CCC' rated loans has narrowed by 0.26 bps to 92.50.

CLO collateral actions remain positive  Despite negative rating actions on a few widely held issuers and the small increase in the average collateralized loan obligation (CLO) 'CCC' bucket size, average S&P Global Ratings' weighted average rating factor values across the index barely moved; this metric (which captures changes in rating profiles of CLO collateral pools) has improved notably since the start of the year. This is due, in part, to the volume of positive rating actions so far in 2021, with upgrades outpacing downgrades across U.S. CLO obligors every month), as well as manager intervention (average turnover has approached 40% since the start of 2021--significantly higher than this time last year at about 28%). The average proportion of the portfolio that has a rating with a negative outlook has declined to 16.4%, about half of what it was at the start of the year (32.4%); obligors with ratings on CreditWatch negative have gone up and down, but they currently sit at 0.77% of total collateral versus 1.62% in January (see table 3).

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Table 1

Top 20 Rating Changes To 'CCC' From 'B-' By Debt Amount (Beginning 2020)
Rating Date Issuer Country Sector Rating to Rating from Debt amount (mil. $)
8/5/2021 China Evergrande Group U.S. Homebuilders/real estate companies CCC B- 16,260
1/27/2021 Viking Cruises Ltd. (Viking Holdings Ltd.) U.S. Media/entertainment CCC+ B- 3,225
5/25/2021 GEO Group (The) Inc. U.S. Consumer products CCC+ B 2,734
4/1/2021 Epic Crude Services L.P. U.S. Utility CCC+ B- 1,175
5/12/2021 WaterBridge Operating LLC (WaterBridge Resources LLC) U.S. Utility CCC+ B- 1,000
8/31/2021 Zep Inc. U.S. Chemicals, packaging, and environmental services CCC+ B- 725
4/9/2021 Ruby Pipeline LLC U.S. Utility CCC B- 825
2/26/2021 Dawn Acquisitions LLC (Infra Colodata Holdings LLC) U.S. Telecommunications CCC B- 550
8/19/2021 JSG I Inc. U.S. Capital goods CCC+ B- 460
4/16/2021 Cornerstone Chemical Co. U.S. Chemicals, packaging, and environmental services CCC+ B- 450
1/25/2021 PetroChoice Holdings Inc. U.S. Consumer products CCC+ B- 435
6/17/2021 Salient CRGT Inc. U.S. Aerospace & Defense CCC B- 420
4/8/2021 BEP Ulterra Holdings Inc. U.S. Oil and gas exploration/production CCC+ B- 415
3/19/2021 MVK Intermediate Holdings LLC U.S. Consumer products CCC+ B 335
5/11/2021 Overseas Shipholding Group Inc. U.S. Transportation CCC+ B- 325
1/29/2021 Terra-Gen Finance Co. LLC (Terra-Gen Power Holding II LLC) U.S. Utility CCC+ B- 320
5/6/2021 New Constellis Borrower LLC (New Constellis Holdings Inc.) U.S. Aerospace/defense CCC+ B- 260
Data as of Aug. 31, 2021. Source: S&P Global Ratings.

Table 2

Top 20 Rating Upgrades From 'CCC' Category (Beginning 2021)
Issuer Country Sector Rating to Rating from Debt amount (mil. $)
6/17/2021 Community Health Systems Inc. U.S. Health care B- CCC+ 17,382
4/29/2021 Endeavor Operating Co. LLC U.S. Media/entertainment B CCC+ 9,172
1/21/2021 NGL Energy Partners L.P. U.S. Utility B CCC+ 8,200
4/9/2021 First Quantum Minerals Ltd. Canada Metals, mining, and steel B CCC+ 5,900
4/15/2021 MEG Energy Corp. Canada Oil/gas exploration and production B+ CCC+ 3,550
8/26/2021 CB Poly Investments LLC United States Consumer products B- CCC+ 3,520
1/21/2021 Petco Holdings Inc. U.S. Retail/restaurants B- CCC+ 3,200
3/24/2021 SM Energy Co. U.S. Oil/gas exploration and production B- CCC+ 2,747
2/10/2021 Cengage Learning Holdings II Inc. U.S. Media/entertainment B- CCC+ 2,555
3/3/2021 Kenan Advantage Group Inc. U.S. Transportation B- CCC+ 2,398
3/16/2021 FXI Holdings Inc. U.S. Chemicals, packaging, and environmental services B- CCC+ 2,075
1/7/2021 Urban One Inc. U.S. Media/entertainment B- CCC 1,872
6/3/2021 Heartland Dental LLC (Hadrian Merger Sub Inc.) U.S. Health care B- CCC+ 1,810
3/31/2021 Priority Holdings LLC (Priority Technology Holdings Inc.) U.S. High technology B- CCC+ 1,777
3/29/2021 Vine Oil & Gas L.P. (Vine Energy Inc.) U.S. Oil/gas exploration and production B- CCC+ 1,760
2/18/2021 Mohegan Tribal Gaming Authority U.S. Media/entertainment B- CCC+ 1,696
3/31/2021 CPM Holdings Inc. U.S. Capital goods B- CCC+ 1,480
3/15/2021 NESCO Holdings Inc. U.S. Capital goods B CCC+ 1,395
5/6/2021 PMHC II Inc. U.S. Chemicals, packaging, and environmental services B- CCC+ 1,330
5/28/2021 ASP Unifrax Holdings Inc. U.S. Capital goods B- CCC+ 1,329
5/6/2021 Welbilt Inc. U.S. Capital goods B- CCC+ 1,325
Data as of June 30, 2021. Source: S&P Global Ratings.

Table 3

CLO BSL Index Metrics
(CLO Insights 2021 U.S. BSL Index)
BSL B-' Bucket CCC' bucket Nonperforming bucket SPWARF (%) CreditWatch Neg Outlook Neg
Jan-21 25.29% 7.64% 0.76% 2,799.00 1.62% 32.43%
Feb-21 25.21% 7.79% 0.53% 2,789.00 0.85% 32.11%
Mar-21 25.01% 7.82% 0.33% 2,773.00 1.19% 29.72%
Apr-21 25.31% 6.97% 0.36% 2,758.00 1.15% 26.49%
May-21 25.06% 6.51% 0.34% 2,738.00 0.76% 25.37%
Jun-21 25.39% 6.56% 0.25% 2,738.00 0.50% 23.00%
Jul-21 25.45% 6.18% 0.39% 2,737.00 0.73% 20.63%
Aug-21 25.43% 5.94% 0.43% 2,727.29 0.55% 18.00%
Sep-21 25.15% 6.32% 0.37% 2,731.00 0.77% 16.41%
BSL CLO--Broadly syndicated loan collateralized loan obligation. SPWARF--S&P Global Ratings' weighted average rating factor. O/C--Overcollateralization. Data as of Sept. 1, 2021.

Related Research

This report does not constitute a rating action.

Credit Markets Research:Nicole Serino, New York + 1 (212) 438 1396;
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 Assistant:Abinash Meher, Pune

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