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SF Credit Brief: CLO Insights 2021 U.S. BSL Index: Credit Metrics Continue To Improve As Upgrades Begin


European RMBS Market Update Q3 2021

Root & Branch - November 2021: Sustainable Linked Markets


Weekly European CLO Update

Take Notes- An Overview Of The 2021 German, Swedish, And Danish Covered Bond Markets

SF Credit Brief: CLO Insights 2021 U.S. BSL Index: Credit Metrics Continue To Improve As Upgrades Begin


CLO Insights 2021 BSL Index: Most Credit Metrics Continue To Improve

Upgrades across issuers with loans in U.S. broadly syndicated loan collateralized loan obligations (BSL CLOs) outnumbered downgrades for another month, though the counts were much closer in September than they had been in prior months, with 21 upgrades and 19 downgrades. We published a U.S. Corporate rating actions tracker with a table listing rating actions on issuers with loans held in U.S. BSL CLOs since the start of 2021 (see "Fourth-Quarter 2021 U.S. Corporate Rating Actions Tracker," published Oct. 18, 2021), which we intend to update bi-weekly with additional rating actions as they come up.

Across our CLO Insights 2021 U.S. BSL Index, most credit metrics have improved during the year: average 'CCC' buckets have declined to 6.1% from 7.6%, average exposure to issuers with a negative rating outlook has declined to 15.4% from 32.4%, and average junior overcollateralization (O/C) cushions have improved to 3.54% from 3.05%.

Table 1

CLO BSL Index Metrics (CLO Insights 2021 U.S. BSL Index)
As of date 'B-' (%) 'CCC' category (%) Nonperforming category (%) SPWARF Watch negative (%) Negative outlook (%) Weighted avg. price of portfolio Jr. O/C cushion (%) Par change (%) YTD turnover (%
Jan. 1, 2021 25.29 7.64 0.76 2799 1.62 32.43 97.48 3.05 0.00 0.00
Feb. 1, 2021 25.21 7.79 0.53 2789 0.85 32.11 98.36 3.12 (0.13) 4.02
March 1, 2021 25.01 7.82 0.33 2773 1.19 29.72 98.67 3.18 (0.16) 8.02
April 1, 2021 25.31 6.97 0.36 2758 1.15 26.49 98.27 3.31 (0.15) 18.71
May 1, 2021 25.06 6.51 0.34 2738 0.76 25.37 98.41 3.40 (0.14) 24.67
June 1, 2021 25.39 6.56 0.25 2738 0.50 23.00 98.65 3.49 (0.13) 29.07
July 1, 2021 25.45 6.18 0.39 2737 0.73 20.63 98.69 3.58 (0.12) 33.48
Aug. 1, 2021 25.43 5.94 0.43 2727 0.55 18.02 98.37 3.52 (0.12) 35.76
Sept. 1, 2021 25.15 6.32 0.37 2731 0.77 16.41 98.47 3.49 (0.10) 39.75
Oct. 1, 2021 25.65 6.07 0.35 2732 0.77 15.39 98.82 3.54 (0.09) 42.13
BSL CLO--Broadly syndicated loan collateralized loan obligation. SPWARF--S&P Global Ratings' weighted average rating factor. O/C--Overcollateralization. YTD--Year to date.

Improvements In CLO Credit Metrics In 2021; Some CLO Ratings Restored To Original Levels

Most of the improvement seen in the index averages is being driven by the pre-pandemic CLOs (CLOs that closed before 2020), which started 2021 with weaker credit metrics and have steadily improved this year. CLOs issued since the start of the pandemic, on the other hand, have exhibited relatively stable performance for 2021. By mid-year, across the pre-pandemic CLOs, average 'CCC' buckets had dipped below 7.5%, and O/C ratios had improved since the start of the year. As a result of these improvements, on Aug. 20, 2021, we placed 252 ratings across 115 U.S. CLO transactions on CreditWatch positive implications. Most of these were ratings that had seen a downgrade last year during the pandemic-driven economic dislocation.

As of Oct. 25, 2021, we have reviewed 284 ratings across 45 CLOs and raised our ratings on 59 of these (see "U.S. CLO Ratings Raised On 31 Classes, Affirmed On 107 From 22 Transactions," published Oct. 8, 2021, and "Ratings Raised On 28 Classes, Affirmed On 118 Classes From 23 U.S. CLO Transactions," published Oct. 25, 2021). Forty-three of these were raised back to their original ratings, while 16 tranches were upgraded to ratings lower than their original ratings. Another 14 ratings were affirmed without being upgraded. Many of the transactions we downgraded in 2020 have experienced credit improvement since we downgraded them; however, many are still not back to their pre-pandemic credit metric levels, and we expect that not all of their ratings will be restored to their original ratings yet. There are still 180 ratings on CreditWatch positive across 70 CLO transactions. We will look to resolve these CreditWatch placements within the coming weeks.

U.S. BSL CLO Top Obligors And Industries Report: Software And Healthcare Providers And Services Are Two Largest Industries

Our third-quarter U.S. BSL CLO Top Obligors And Industries report was published (see "U.S. BSL CLO Top Obligors And Industries Report: Third-Quarter 2021," published Oct. 13, 2021). Chart 1 shows a breakdown of U.S. BSL CLO portfolio exposures by GICS industry. Software and healthcare providers and services continue to be the two largest industries, making up 10.3% and 6.2% of overall U.S. BSL CLO exposures, respectively, as they continue to offer above-average spread levels (over half of the CLO exposure to software issuers are rated 'B-').

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;
Secondary Contact:Deegant R Pandya, New York + 1 (212) 438 1289;

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