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Credit Trends: Risky Credits: Negative Swing For North American Issuers Rated 'CCC+' And Below

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Global Economic Outlook Q2 2023: Real Resilience Meets Financial Fragility

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This Month In Credit: 2023 Data Companion

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Default, Transition, and Recovery: 2022 Annual Japanese Corporate And Public Finance Default And Rating Transition Study


Credit Trends: Risky Credits: Negative Swing For North American Issuers Rated 'CCC+' And Below

(Editor's Note: Our "Risky Credits" series focuses on U.S. and Canadian 'CCC' category rated corporate issuers, as well as issuers rated 'B-' with negative outlooks or on CreditWatch negative, because most defaults are of issuers in these categories.)

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Key Expectations For 2023

The number of issuers rated 'CCC+' and below jumped by nearly 15% since December 2021, amounting to an additional $255 billion in debt outstanding.  Higher-for-longer inflation and tighter financing conditions are weighing on lower-rated borrowers.

Ratings momentum for 'CCC+' and below rated issuers in North America did a 180 last year--turning negative.  Much of this can be attributed to an increase in issuers downgraded to 'CCC+' and below in the second half of 2022. While the number of downgrades to 'CCC+' and below rose to 86 in 2022, the number of upgrades shrank dramatically to 34. This compares with 27 downgrades and 82 upgrades in 2021 (see chart 2).

Speculative-grade rating distribution has turned more negative heading in 2023 as rating trends signal further credit deterioration (see chart 3).  The percentage of issuers rated 'B-' with negative outlooks or on CreditWatch negative increased to 15% as of December 2022 from 9% in December 2021, while issuers rated 'CCC+' and below with negative outlooks rose to 76% from 61% in the same period. We expect the population of issuers rated 'CCC+' and below to continue to climb in the coming months.

We expect the number of defaults to increase in 2023 as a U.S. recession looms.  S&P Global economists forecast a U.S. recession is likely in 2023 as inflation remains high and floating-rate borrowing costs continue to rise. Defaults in the U.S. totaled 36 in 2022, and we believe there will be an uptick in 2023. We forecast the U.S. trailing-12-month speculative-grade corporate default rate will reach 3.75% by September 2023, up from 1.7% in December 2022 but still lower than the long-term average of 4.1% (see "The U.S. Speculative-Grade Corporate Default Rate Could Reach 3.75% By September 2023," Nov. 21, 2022).

Chart 1

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Chart 2

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Chart 3

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High tech led with the greatest year-over-year increase in 'CCC+' and below rated debt in 2022, to $39.6 billion.  The increase followed a number of rating actions in the second half of 2022 as companies are less well-positioned to navigate macroeconomic headwinds and are already being affected by much higher debt financing costs (see "U.S. Tech Bracing For The Credit Storm: Ripples Now With A Chance Of Bigger Waves," Dec. 6, 2022).

Chart 4

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CLO credits showed marginal deterioration in the second half of 2022.  U.S. corporate rating actions were on a positive trajectory for the first half of 2022, but they trended more negative in the second half of the year as economic headwinds increased. As a result, the trend of U.S. collateralized loan obligation (CLO) credit metrics gradually improving earlier in the year reversed course, and they started to see modest deterioration.

The average broadly syndicated loan CLO 'CCC' bucket started 2022 at 4.94% and reached a low point of 4.00% at the start of August. It then reversed course and began creeping up, to end the year at 5.23%. Most of the credit metrics in table 1 ended the year in a slightly worse position than where they started. The exceptions are junior overcollateralization (O/C) test cushions and a gain in the par balance of the portfolios during 2022, both of which benefited from managers trading when loan prices were below 95 for much of the latter part of the year.

Table 1

CLO BSL Index Metrics (CLO Insights 2022 U.S. BSL Index)
(%) 'B-' bucket 'CCC' bucket Nonperforming bucket CreditWatch neg Outlook negative
Jan-22 26.41 4.94 0.17 0.88 12.33
Feb-22 27.16 4.27 0.37 0.28 11.94
Mar-22 27.09 4.26 0.39 0.11 11.35
Apr-22 27.44 4.17 0.13 1.06 10.86
May-22 27.76 4.26 0.14 1.20 9.83
Jun-22 27.70 4.14 0.20 1.27 10.46
Jul-22 28.59 4.01 0.35 1.35 11.08
Aug-22 28.70 4.00 0.34 1.46 11.53
Sep-22 29.00 4.21 0.59 1.03 12.20
Oct-22 28.85 4.40 0.50 1.16 13.36
Nov-22 28.85 5.02 0.40 0.59 14.46
Dec-22 29.50 4.95 0.34 0.32 14.62
BSL CLO--Broadly syndicated loan collateralized loan obligation. SPWARF--S&P Global Ratings' weighted average rating factor. O/C--Overcollateralization.

Aerospace and defense, high tech, and media and entertainment could be most exposed to a cyclical downturn.  The other highly cyclical sectors with elevated leverage--consumer products, business and consumer services, and capital goods--could see more top-line and margin pressure in early 2023. Real estate leads with the highest leverage, but the exposure is limited as there is just one issuer rated 'CCC+' and below.

Chart 5

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Table 2

Downgrades To 'CCC' Category In 2022
Issuer Country Sector Rating to Rating from Debt amount (mil. US$)
8/1/2022

Bausch Health Cos. Inc.

Canada Health care CCC+ B 44,402
10/14/2022

Finastra Ltd.

Cayman Islands High technology CCC+ B- 34,432
12/15/2022

Radiate Holdco LLC

U.S. Telecommunications CCC+ B 9,940
10/28/2022

Team Health Holdings Inc.

U.S. Health care CCC+ B- 9,849
11/23/2022

NGL Energy Partners L.P.

U.S. Utility CCC+ B- 7,300
12/16/2022

Telesat Canada (Telesat Holdings Inc.)

Canada Telecommunications CCC+ B 6,717
4/14/2022

Talen Energy Supply LLC (Talen Energy Corporation)

U.S. Utility CCC B- 6,329
5/3/2022 Intrado Corp. U.S. Telecommunications CCC+ B- 5,407
3/10/2022

VEON Ltd.

Bermuda Telecommunications CCC+ BB+ 5,306
8/24/2022

Artera Services LLC

U.S. Capital goods CCC+ B- 3,952
9/12/2022

Brand Industrial Services Inc.

U.S. Capital goods CCC+ B- 3,825
12/8/2022

New Insight Holdings Inc.

U.S. Media & entertainment CCC+ B- 3,675
10/7/2022

Photo Holdings LLC

U.S. Media & entertainment CCC B- 3,290
5/11/2022

Diebold Nixdorf Inc.

U.S. High technology CCC+ B- 3,207
3/31/2022

Monitronics International Inc.

U.S. Media & entertainment CCC+ B- 3,123
7/29/2022

Avaya Holdings Corp.

U.S. High technology CCC B- 2,943
8/12/2022

Party City Holdings Inc. (PC Nextco Holdings LLC)

U.S. Retail/restaurants CCC+ B- 2,923
10/19/2022

PECF USS Intermediate Holding III Corp.

U.S. Chemicals, packaging, & environmental services CCC+ B- 2,550
9/12/2022

U.S. Renal Care Inc.

U.S. Health care CCC+ B- 2,330
5/19/2022

Rite Aid Corp.

U.S. Retail/restaurants CCC+ B- 2,269
11/28/2022

FXI Holdings Inc.

U.S. Chemicals, packaging, & environmental services CCC+ B- 2,075
11/17/2022

Air Methods Corp.

U.S. Health care CCC B- 1,810
8/23/2022

Audacy Inc.

U.S. Media & entertainment CCC+ B- 1,780
12/13/2022

Aventiv Technologies LLC

U.S. Telecommunications CCC+ B- 1,665
9/23/2022

Wheel Pros Inc.

U.S. Automotive CCC+ B- 1,540
8/22/2022

Bed Bath & Beyond Inc.

U.S. Retail/restaurants CCC B- 1,500
7/29/2022

Weber Inc.

U.S. Consumer products CCC+ B 1,500
3/11/2022

Logan Group Co. Ltd.

Cayman Islands Homebuilders/real estate co. CCC- B- 1,280
9/29/2022

National CineMedia Inc.

U.S. Media & entertainment CCC B- 1,220
9/19/2022

Five Point Holdings LLC

U.S. Homebuilders/real estate co. CCC+ B- 1,200
2/25/2022

Cooper-Standard Holdings Inc.

U.S. Automotive CCC+ B- 990
5/26/2022

TecoStar Holdings Inc.

U.S. Health care CCC+ B- 950
5/3/2022

Carestream Health Inc.

U.S. Health care CC B- 948
12/21/2022

Cyxtera Technologies Inc.

U.S. Telecommunications CCC B- 915
11/7/2022

Mongolian Mining Corp.

Cayman Islands Metals, mining, & steel CC B- 880
5/25/2022

Carrols Restaurant Group Inc.

U.S. Retail/restaurants CCC+ B- 800
12/20/2022

Centerfield Media Parent Inc. (Millennium Top1 Corporation)

U.S. Media & entertainment CCC+ B 785
2/25/2022

8th Avenue Food & Provisions Inc.

U.S. Consumer products CCC+ B- 750
6/17/2022

Canopy Growth Corp.

Canada Consumer products CCC B- 750
10/19/2022

Quincy Health LLC

U.S. Health care CCC B- 732
12/13/2022

Werner FinCo L.P. (New Werner Holding Co. Inc.)

U.S. Forest Products & Building Materials CCC+ B- 625
7/18/2022

IXS Holdings Inc.

U.S. Automotive CCC+ B- 620
12/16/2022

Rising Tide Holdings Inc.

U.S. Retail/restaurants CCC B- 575
9/30/2022

Lucky Bucks LLC

U.S. Media & entertainment CCC B 555
12/21/2022

Greenway Health LLC

U.S. Health care CCC+ B- 530
10/20/2022

Victory Buyer LLC

U.S. Capital goods CCC+ B- 525
11/17/2022

FR BR Holdings LLC

U.S. Utility CCC+ B- 516
8/17/2022

Traeger Inc.

U.S. Consumer products CCC+ B 510
12/19/2022

Gopher Resource LLC (ECP Gopher Holdings L.P.)

U.S. Metals, mining, & steel CCC+ B- 510
10/20/2022

China SCE Group Holdings Ltd.

Cayman Islands Homebuilders/real estate co. CCC+ B- 500
11/16/2022

Loyalty Ventures Inc.

U.S. Media & entertainment CCC+ B- 500
10/26/2022

Glatfelter Corp.

U.S. Forest products & building materials CCC+ B+ 500
6/8/2022

P&L Development Holdings LLC

U.S. Consumer products CCC+ B- 465
4/27/2022

Phoenix Services International LLC

U.S. Metals, mining, & steel CCC+ B 465
4/14/2022

NSA International LLC

U.S. Consumer products CCC B- 450
10/21/2022

IAMGOLD Corp.

Canada Metals, mining, & steel CCC+ B- 450
12/16/2022

Instant Brands Holdings Inc.

U.S. Consumer products CCC+ B- 450
2/11/2022

INW Manufacturing LLC

U.S. Consumer products CCC+ B- 440
1/31/2022

Halo Buyer Inc.

U.S. Consumer products CCC+ B- 440
4/14/2022

CoolSys Inc.

U.S. Consumer products CCC+ B- 440
6/3/2022

CareerBuilder LLC

U.S. Media & entertainment CCC B- 415
3/22/2022

PlayPower Holdings Inc.

U.S. Media & entertainment CCC+ B- 400
12/8/2022

GPS Hospitality Holding Co. LLC

U.S. Retail/restaurants CCC+ B- 400
11/21/2022

Power Stop LLC

U.S. Automotive CCC+ B- 395
9/2/2022

Fly Leasing Ltd.

Bermuda Transportation CCC- B- 391
8/19/2022

QualTek LLC

U.S. Capital goods CCC+ B- 380
3/15/2022

The Cleaver-Brooks Co. Inc.

U.S. Capital goods CCC B- 375
12/23/2022

Stitch Acquisition Corp.

U.S. Consumer products CCC B- 370
9/16/2022

Blue Ribbon, LLC (Blue Ribbon Intermediate Holdings LLC)

U.S. Consumer products CCC+ B- 368
2/9/2022

Lannett Co. Inc.

U.S. Health care CCC+ B- 350
5/12/2022

pH Beauty Holdings I Inc.

U.S. Consumer products CCC+ B- 340
2/11/2022

Moran Foods LLC (SAL Acquisition Corp.)

U.S. Retail/restaurants CCC+ B- 334
4/1/2022

CNG Holdings Inc.

U.S. Financial institutions CCC+ B- 310
11/4/2022

Spanish Broadcasting System Inc.

U.S. Media & entertainment CCC+ B- 310
11/9/2022

Beasley Broadcast Group Inc.

U.S. Media & entertainment CCC+ B- 300
10/21/2022

Casa Systems Inc.

U.S. High technology CCC+ B- 300
3/29/2022

Skillz Inc.

U.S. Media & entertainment CCC+ B- 300
3/18/2022

JHW Alphia Holdings Inc.

U.S. Consumer products CCC+ B- 285
8/26/2022

Sierra Enterprises LLC

U.S. Consumer products CCC+ B- 282
6/23/2022 Vida Capital Inc. U.S. Financial institutions CCC B- 275
2/7/2022

Data Axle Inc.

U.S. Media & entertainment CCC B- 250
9/9/2022

UC Holdings Inc. (Chassix Holdings Inc.)

U.S. Automotive CCC+ B- 225
9/12/2022

Wahoo Fitness Acquisition LLC

U.S. Consumer products CCC B- 225
12/7/2022

Tacora Resources Inc.

Canada Metals, mining, & steel CCC+ B- 225
12/14/2022

Digital Media Solutions Inc.

U.S. Media & entertainment CCC+ B- 225
8/19/2022

Array Midco Corp.

Canada Consumer products CCC+ B- 27
Data as of Dec. 31, 2022. Source: S&P Global Credit Research & Insights.

Table 3

Upgrades From 'CCC' Category In 2022
Issuer Country Sector Rating to Rating from Debt amount (mil. US$)
8/23/2022

Bombardier Inc.

Canada Aerospace & defense B- CCC+ 6,360
2/17/2022

Nabors Industries Ltd.

Bermuda Oil & gas exploration & production B- CCC+ 5,101
5/23/2022

Varsity Brands Holding Co. Inc.

U.S. Consumer products B- CCC+ 3,100
1/18/2022

Syniverse Holdings Inc. (Syniverse Technologies Corporation)

U.S. Telecommunications B- CCC+ 2,922
2/4/2022

Apex Tool Group LLC

U.S. Forest products & building materials B- CCC 2,729
12/1/2022

Bausch + Lomb Corporation (Bausch Health Companies Inc.)

Canada Health care B- CCC+ 2,500
4/5/2022

DTI Holdco Inc.

U.S. Media & entertainment B- CCC+ 2,155
4/4/2022

KUEHG Corp.

U.S. Media & entertainment B- CCC+ 1,387
8/17/2022

Peabody Energy Corp.

U.S. Metals, mining, & steel B- CCC+ 1,382
6/23/2022

Fitness International LLC

U.S. Media & entertainment B- CCC+ 1,275
6/10/2022

Spectacle Bidco Holdings Inc.

Canada Media & entertainment B- CCC+ 1,232
1/12/2022

National CineMedia Inc.

U.S. Media & entertainment B- CCC+ 1,220
7/29/2022

Hovnanian Enterprises Inc.

U.S. Homebuilders/real estate co. B- CCC+ 1,166
1/20/2022

Electronics for Imaging Inc.

U.S. High technology B- CCC+ 1,100
7/8/2022

WaterBridge Operating LLC (WaterBridge Resources, LLC)

U.S. Oil & gas exploration & production B- CCC+ 1,000
6/10/2022

Spring Education Group Inc.

U.S. Media & entertainment B- CCC+ 866
9/23/2022

SIRVA Inc.

U.S. Transportation B- CCC+ 850
7/28/2022

Vantage Specialty Chemicals Inc.

U.S. Chemicals, packaging, & environmental services B- CCC+ 758
4/4/2022

Learning Care Group (US) No. 2 Inc. (Learning Care Group (US) Inc.)

U.S. Media & entertainment B- CCC+ 710
5/13/2022

Jazz Acquisition Inc. (Wencor Group LLC)

U.S. Aerospace & defense B- CCC+ 610
2/25/2022

Yellow Corp.

U.S. Transportation B- CCC+ 600
8/25/2022

JSG I Inc.

U.S. Capital goods B- CCC+ 460
4/25/2022

Cornerstone Chemical Co.

U.S. Chemicals, packaging, & environmental services B- CCC+ 450
4/12/2022

BEP Ulterra Holdings Inc.

U.S. Oil & gas exploration & production B- CCC+ 415
3/14/2022

Salem Media Group Inc.

U.S. Media & entertainment B- CCC+ 370
9/9/2022

New TMW LLC

U.S. Consumer products B- CCC+ 365
2/23/2022

Screenvision LLC

U.S. Media & entertainment B- CCC+ 350
5/6/2022

Shape Technologies Group Inc.

U.S. Capital goods B- CCC+ 350
6/14/2022

KC Culinarte Holdings L.P.

U.S. Consumer products B- CCC+ 313
1/13/2022

JW Aluminum Continuous Cast Co.

U.S. Metals, mining, & steel B- CCC+ 300
8/12/2022

Miller's Ale House Inc.

U.S. Retail/restaurants B- CCC+ 291
9/1/2022

Calceus Acquisition Inc.

U.S. Consumer products B- CCC+ 290
4/21/2022

RCP Vega Inc.

U.S. High technology B- CCC+ 260
2/8/2022

Crew Energy Inc.

Canada Oil & gas exploration & production B- CCC+ 235
Data as of Dec. 31, 2022. Source: S&P Global Credit Research & Insights.

Related Research

This report does not constitute a rating action.

Credit Research & Insights:Nicole Serino, New York + 1 (212) 438 1396;
nicole.serino@spglobal.com
Patrick Drury Byrne, Dublin (00353) 1 568 0605;
patrick.drurybyrne@spglobal.com
Leveraged Finance:Ramki Muthukrishnan, New York + 1 (212) 438 1384;
ramki.muthukrishnan@spglobal.com
Minesh Patel, CFA, New York + 1 (212) 438 6410;
minesh.patel@spglobal.com
Secondary Contact:Daniel Hu, FRM, New York + 1 (212) 438 2206;
daniel.hu@spglobal.com
Research Contributor:Vaishali Singh, CRISIL Global Analytical Center, an S&P affiliate, Mumbai

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