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SF Credit Brief: CLO Insights 2021 MM Index: Improving Credit And Increased Issuance So Far In 2021


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Fourth-Quarter 2021 U.S. Corporate Rating Actions Tracker


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SF Credit Brief: CLO Insights 2021 MM Index: Improving Credit And Increased Issuance So Far In 2021


According to S&P Leveraged Commentary & Data (LCD), a total of 15 new issue middle-market (MM) collateralized loan obligations (CLOs) have closed in 2021 year to date, while another 17 have experienced either a refinancing or a reset. All of this is occurring against a backdrop of stable credit fundamentals, with the 64 CLOs in our middle-market CLO Insights index seeing a drop in exposure to defaulted obligors (which has declined by about half so far this year), stable par balances, and increasing junior overcollateralization (O/C) test cushions.

In keeping with the theme of stable credit fundamentals, MM CLO 'CCC' buckets have mostly remained range bound as some credit estimates have expired since the start of the year (and thus are counted as part of the 'CCC' bucket in table 1), while other 'CCC' exposures saw credit estimates increased to 'b-' (or higher) over the same period. Meanwhile, new issuers with newly assigned credit estimates continue to be added to this index of reinvesting MM CLO portfolios.

Table 1

Middle-Market CLO Insights 2021 Index: Credit Metrics
'B-' (%) CCC' bucket (%)(i) Nonperforming category (%) SPWARF(i) Jr. O/C cushion (%) Par (%) % credit estimated
Start 66.05 23.34 0.87 3926 5.24 0.00 73.65
2/1/2021 65.78 23.96 0.80 3942 5.46 (0.03) 72.79
3/1/2021 64.86 25.14 0.69 3956 5.55 (0.00) 72.13
4/1/2021 64.57 25.50 0.65 3968 5.66 0.04 71.60
5/1/2021 65.84 24.71 0.66 3964 5.79 0.08 71.58
6/1/2021 66.88 23.99 0.59 3954 5.99 0.15 72.27
7/6/2021 66.10 24.56 0.51 3964 6.16 0.21 71.75
8/1/2021 65.61 25.13 0.46 3977 6.30 0.25 71.14
9/1/2021 66.12 24.51 0.40 3966 6.43 0.25 71.85
(i)Includes obligors with expired credit estimates, which are treated as ‘CCC-‘ in our analysis. MM CLO--Middle-market collateralized loan obligation. SPWARF--S&P Global Ratings' weighted average rating factor. O/C--Overcollateralization.

Credit Estimates Of MM CLO Exposures: Refreshed, Expired, Or Replaced With New Issuers

At the start of the year, the 60-plus MM CLOs within our index had exposure to over 1,400 credit estimated issuers. In the first half of 2021, about 700 issuers had their credit estimates refreshed, with a large majority of these seeing no change. Of the obligors that did see a change in credit estimate, those seeing a lower estimate assigned very slightly outnumbered those seeing a higher estimate assigned. In addition, some obligors saw credit estimates expire, and thus, those are treated as 'ccc-' in table 1 above. As such, year to date, the S&P Global Ratings weighted average rating factor (SPWARF) values have increased slightly across the index.

Additionally, more than 230 issuers were assigned credit estimates for the first time in 2021, many of which found their way into the existing MM CLOs within this index, all of which are within their reinvestment period, and some of which have seen considerable portfolio turnover this year. Two-thirds of these newly assigned estimates this year are to smaller issuers with less than $25 million in EBITDA. The industry distribution of the new entrants is substantially the same as the industry distribution of existing MM CLO obligors. As expected, the industry distribution across the CLO MM Insights 2021 Index has not changed much since the start of the year. Exposure to tech- and healthcare-related issuers continue to make up a notable proportion of MM CLO exposures.

Sectors Exposures Across The MM CLO Insights Index Remain Almost Identical Compared To The Start Of 2021

The chart below shows the top 20 GIC exposures with the 2021 MM CLO Index. Sectors exposures across The MM CLO Insights Index remain almost identical compared to the start Of 2021.

Chart 1


This report does not constitute a rating action.

Primary Credit Analysts:Daniel Hu, FRM, New York + 1 (212) 438 2206;
Stephen A Anderberg, New York + (212) 438-8991;
Ramki Muthukrishnan, New York + 1 (212) 438 1384;
Secondary Contact:Deegant R Pandya, New York + 1 (212) 438 1289;

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