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


Default, Transition, and Recovery: Global Corporate Default Tally Remains At 67 As Defaults Continue To Slow


Credit Trends: U.S. Corporate Bond Yields As Of Dec. 1, 2021


Credit Trends: Potential Downgrades Fall While Potential Upgrades Stall


Credit Trends: 'BBB' Pulse: The Future Looks Bright As Potential Rising Stars Shoot Up

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

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.


*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).

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Table 1

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.

Table 2

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.

Table 3

CLO BSL Index Metrics (CLO Insights 2021 U.S. BSL Index)
As of date 'B-' (%) 'CCC' category (%) Nonperforming category (%) SPWARF Watch negative (%) Negative outlook (%)
Jan-21 2529.00% 764.00% 76.00% 279900.00% 162.00% 3243.00%
Feb-21 2521.00% 779.00% 53.00% 278900.00% 85.00% 3211.00%
Mar-21 2501.00% 782.00% 33.00% 277300.00% 119.00% 2972.00%
Apr-21 2531.00% 697.00% 36.00% 275800.00% 115.00% 2649.00%
May-21 2506.00% 651.00% 34.00% 273800.00% 76.00% 2537.00%
Jun-21 2539.00% 656.00% 25.00% 273800.00% 50.00% 2300.00%
Jul-21 2545.00% 618.00% 39.00% 273700.00% 73.00% 2063.00%
Aug-21 2542.81% 594.04% 42.85% 272728.66% 54.59% 1802.14%
Sep-21 2515.00% 632.00% 37.00% 273100.00% 77.00% 1641.00%
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.

Related Research

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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