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.
- The number of 'CCC' category ratings on U.S. and Canadian companies declined to an 18-month low of 159, as of Sept. 30, 2021.
- More than 70% of 'CCC' rating actions so far in 2021 have been upgrades--the highest among speculative-grades rating categories. However, net cumulative rating actions show a long way until recovery.
- Monthly issuance has been slowing but remains 50% higher than at this point last year.
- The three-month weighted average for monthly transitions from 'B-' to 'CCC' was 0.46%, well below the long-term weighted-average of 2.21%.
*Arrows and colors show direction month-over-month movements
Data as of Sept. 30, 2021. All risk indicators are measured against last month's report. S&P/LSTA data as of Oct 4, 2021. S&P Global Ratings Research. U.S. distress ratio is as of Aug. 5, 2021. 'B' and 'CCC' Rating Population excludes 'B+' ratings.
On This Month's Front Burner
Net upgrades are highest in the 'CCC' rating category Upgrades continue to far outpace downgrades in the 'CCC' rating category for the 10th consecutive month as 'CCC' net upgrades (upgrades minus downgrades) remain the highest among all other rating categories (see chart 1). Notable upgrades out of the 'CCC' rating category in September include : Petroleum storage operator Gulf Finance LLC, data center service provider Cyxtera Technologies, Inc. and chemical companies Polymer Additives Holdings LLC and LSB Industries. The downgrade rate (defined as the number of 'CCC' category and below rated downgrades divided by the total rating actions to and from the 'CCC' rating category) ticked up to 45% in September (see chart 2) with notable downgrades including U.S. TelePacific Holdings Corp. and Dunn Paper Holdings Inc.
Negative bias has reached all-time low The number of 'CCC' rated issuers with a negative outlook or CreditWatch placement with negative implications has reached to an all-time low of just 65%. The negative bias for 'B-' rated issuers has also dropped to an all-time low of 12% in September 2021 as we expect positive rating trends to continue for our lowest rated issuers.
'CCC' issuance is 1.57x 2021 year-to-date and 'B/B-' is 2.27x After a strong start to the year, issuance has slowed over the last two months, bringing the ratio of YTD 2021 issuance to YTD 2020 issuance from 2.4 to 1.57 for 'CCC and below', and from 2.35 to 2.27 for 'B/B-' when compared with the end of June 2021. However, these levels are still significantly higher than 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.
Defaults continue to slow There were no U.S.-based defaults in the month of September and only six in the third quarter. We estimate the U.S. 12-month-trailing speculative-grade default rate fell to 2.4% in September 2021 from 2.8% in August ( see " Global Corporate Default Tally For 2021 Reaches 62", Oct. 8, 2021).
Transitioning to 'CCC' ticks up, but remains low Transition into both B- to CCC category and B to B- category ticked up slightly September 2021 but remained low remained low at only 0.7% (compared to the long term weighted average of 2.2%) and 0.5% (as compared to the 1.3% long-term weighted average) respectively.
Bids recover The average bid of 'B' rated loans widen by 0.27 bps since our last report to 99.35, as of September 30, 2021, while the bid for 'CCC' rated loans has widen by 0.16 bps to 92.66.
Media and entertainment and tech remain most CCC exposed By debt amount, much of the 'CCC' sector exposure is in the media and entertainment and high technology sectors, with US$43.241 billion and US$2.177 billion each. However, in the high technology sector, debt is spread across a small number of issuers. The media and entertainment and consumer products sectors hold the highest 'CCC' exposure by issuer count with 65% and 82% on negative bias and at risk for further downgrade or default.
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).
|Top 20 Rating Changes To 'CCC' From 'B-' By Debt Amount (Beginning 2021|
|Rating Date||Issuer||Country||Sector||Rating To||Rating From||Debt Amount (US $ Mil)|
|8/5/2021||China Evergrande Group||United States||Homebuilders/Real Estate Co.||CCC||B-||$16,260|
|1/27/2021||Viking Cruises Ltd. (Viking Holdings Ltd)||United States||Media & Entertainment||CCC+||B-||$3,225|
|5/25/2021||GEO Group (The) Inc.||United States||Consumer Products||CCC+||B||$2,734|
|9/29/2021||Fantasia Holdings Group Co. Ltd.||United States||Homebuilders/Real Estate Co.||CCC||B||$1,950|
|4/1/2021||Epic Crude Services, LP||United States||Utility||CCC+||B-||$1,175|
|5/12/2021||WaterBridge Operating LLC (WaterBridge Resources, LLC)||United States||Utility||CCC+||B-||$1,000|
|4/9/2021||Ruby Pipeline LLC||United States||Utility||CCC||B-||$825|
|8/31/2021||Zep Inc.||United States||Chemicals, Packaging & Environmental Services||CCC+||B-||$725|
|9/2/2021||U.S. TelePacific Holdings Corp.||United States||Telecommunications||CCC+||B-||$655|
|2/26/2021||Dawn Acquisitions LLC (Infra Colodata Holdings LLC)||United States||Telecommunications||CCC||B-||$550|
|8/19/2021||JSG I Inc.||United States||Capital Goods||CCC+||B-||$460|
|4/16/2021||Cornerstone Chemical Co.||United States||Chemicals, Packaging & Environmental Services||CCC+||B-||$450|
|1/25/2021||PetroChoice Holdings, Inc.||United States||Consumer Products||CCC+||B-||$435|
|6/17/2021||Salient CRGT, Inc.||United States||Aerospace & Defense||CCC||B-||$420|
|4/8/2021||BEP Ulterra Holdings, Inc.||United States||Oil & Gas Exploration & Production||CCC+||B-||$415|
|9/8/2021||Dunn Paper Holdings Inc.||United States||Chemicals, Packaging & Environmental Services||CCC+||B-||$350|
|3/19/2021||MVK Intermediate Holdings, LLC||United States||Consumer Products||CCC+||B||$335|
|5/11/2021||Overseas Shipholding Group Inc.||United States||Transportation||CCC+||B-||$325|
|1/29/2021||Terra-Gen Finance Company LLC (Terra-Gen Power Holding II LLC)||United States||Utility||CCC+||B-||$320|
|9/22/2021||Xinyuan Real Estate Co. Ltd.||United States||Homebuilders/Real Estate Co.||CCC||B-||$300|
|Source: S&P Global Ratings. Data as of Sept. 30, 2021.|
|Top 20 Rating Upgrades From 'CCC' Category (Beginning 2021)|
|Rating Date||Issuer||Country||Sector||Rating To||Rating From||Debt Amount (US $ Mil)|
|6/17/2021||Community Health Systems Inc.||United States||Health Care||B-||CCC+||$17,382|
|4/29/2021||Endeavor Operating Company, LLC||United States||Media & Entertainment||B||CCC+||$9,172|
|1/21/2021||NGL Energy Partners LP||United States||Utility||B||CCC+||$8,200|
|4/9/2021||First Quantum Minerals Ltd||Canada||Metals, Mining & Steel||B||CCC+||$5,900|
|3/15/2021||Ferrellgas L.P. (Ferrellgas Partners L.P.)||United States||Utility||B-||CC||$4,350|
|7/15/2021||Rite Aid Corp.||United States||Retail/Restaurants||B-||CCC+||$4,069|
|4/15/2021||MEG Energy Corp.||Canada||Oil & Gas Exploration & 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.||United States||Retail/Restaurants||B-||CCC+||$3,200|
|3/24/2021||SM Energy Company||United States||Oil & Gas Exploration & Production||B-||CCC+||$2,747|
|2/10/2021||Cengage Learning Holdings II Inc.||United States||Media & Entertainment||B-||CCC+||$2,555|
|7/14/2021||Callon Petroleum Co.||United States||Oil & Gas Exploration & Production||B-||CCC+||$2,550|
|3/3/2021||Kenan Advantage Group Inc.||United States||Transportation||B-||CCC+||$2,398|
|3/16/2021||FXI Holdings, Inc.||United States||Chemicals, Packaging & Environmental Services||B-||CCC+||$2,075|
|9/28/2021||Gulf Finance, LLC||United States||Oil & Gas Exploration & Production||B-||CCC+||$1,873|
|1/7/2021||Urban One, Inc.||United States||Media & Entertainment||B-||CCC||$1,872|
|6/3/2021||Heartland Dental, LLC (Hadrian Merger Sub Inc.)||United States||Health Care||B-||CCC+||$1,810|
|3/31/2021||Priority Holdings, LLC (Priority Technology Holdings, Inc.)||United States||High Technology||B-||CCC+||$1,777|
|3/29/2021||Vine Oil & Gas LP (Vine Energy Inc.)||United States||Oil & Gas Exploration & Production||B-||CCC+||$1,760|
|2/18/2021||Mohegan Tribal Gaming Authority||United States||Media & Entertainment||B-||CCC+||$1,696|
|Source: S&P Global Ratings. Data as of Aug. 31, 2021.|
|CLO BSL Index Metrics (CLO Insights 2021 U.S. BSL Index)|
|As of date||'B-' (%)||'CCC' category (%)||Nonperforming category (%)||SPWARF||Watch negative (%)||Negative outlook (%)|
|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.|
This report does not constitute a rating action.
- The Global Weakest Links Tally Reaches Pre-Pandemic Levels, Sept. 29, 2021
- North America Credit Markets Update–Q4 2021, Sept. 28, 2021
- Growing Risks, Diminishing Rewards--Has The U.S. Speculative-Grade Market Hit A Peak?, Sept. 10, 2021
- U.S. Corporate Defaults Through August Mark A Seven-Year Low, Sept. 3, 2021
- The U.S. Speculative-Grade Corporate Default Rate Could Fall To 2.5% By June 2022, Aug 20, 2021
- U.S. Distress Ratio Rose Slightly To 2.6% After 16-Month Decline, Aug. 5, 2021
- U.S. CLO And Leveraged Finance Quarterly Key Themes, July 30, 2021
- About 90% Of 2021 Corporate Defaults Are From 'CCC+' Or Lower-Rated Entities, June 26, 2021
|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 Contributor:||Abinash Meher, CRISIL Global Analytical Center, an S&P affiliate, Mumbai|
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