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CLO Spotlight: U.S. CLO Rating Actions And Exposure To Negative Corporate Rating Actions (As Of Aug. 23, 2020)

(Editor's Note: This article is part of a series in which we list companies with loans held in U.S. broadly syndicated CLO collateral pools that have experienced negative rating actions. We will update and republish the list of affected CLO obligors on a periodic basis.)

As of Aug. 23, 2020, over 500 of the more than 1,500 obligors held in U.S. broadly syndicated collateralized loan obligations (BSL CLOs) rated by S&P Global Ratings have either been downgraded or placed on CreditWatch with negative implications, or both. This represents about 31% of the par amount of assets held in these transactions.

Assessing The Pace Of Negative Corporate Rating Actions

The number of negative corporate rating actions has moderated in the past several months after peaking in late March and early April, while the number ratings affirmed and removed from CreditWatch negative has increased (see table 1). About 5.5% of exposures across the CLO Insights 2020 Index are on CreditWatch negative, while about 38.2% have a negative rating outlook (see table 2).

Table 1

Weekly Distribution Of Issuers Affected By COVID-19 And Oil Prices By Action Type
(Number of issuers)
Downgrades Downgrades and CreditWatch changes CreditWatch negative placements Outlook revision Total
Feb. 7 1 1
Feb. 14 1 2 3
Feb. 21 2 1 3 6
Feb. 28 2 2
March 6 2 5 7
March 13 3 2 1 5 11
March 20 41 25 35 26 127
March 27 117 19 30 111 277
April 2 117 17 29 104 267
April 10 59 17 10 110 196
April 17 76 8 11 74 169
April 24 55 11 4 95 165
May 1 34 3 2 91 130
May 8 54 9 1 46 110
May 15 32 3 36 71
May 22 33 4 1 22 60
May 29 28 1 1 13 43
June 5 17 2 3 11 33
June 12 37 1 19 57
June 19 29 13 42
June 26 23 3 1 11 38
July 3 16 4 1 11 32
July 10 12 3 1 3 19
July 17 23 8 31
July 24 12 1 7 20
July 31 13 1 5 19
Aug. 7 10 2 1 4 17
Aug. 14 12 1 4 17
Aug. 17 2 3 5
Rating actions are tracked at an issuer level. If an issuer has had multiple rating actions since Feb. 3, 2020, the last rating action date is reflected in the chart. Data as of Aug. 17, 2020. Source: S&P Global Ratings Research.

Table 2

CLO Index Metrics (CLO Insights 2020 Index)
'B-' (%) 'CCC' category (%) Nonperform category (%) Jr. O/C cushion (%) Weighted average price of portfolio SPWARF Par change (%) CreditWatch negative (%) Negative (%)
Jan. 1, 2020 19.97 4.11 0.54 3.86 97.45 2644 0.00 1.63 17.36
Feb. 1, 2020 20.20 4.07 0.56 3.80 97.55 2645 (0.04) 1.33 17.66
March 1, 2020 20.16 4.13 0.63 3.76 95.83 2639 (0.07) 1.61 17.18
March 20, 2020 22.91 6.92 0.65 3.74 79.53 2753 (0.09) 8.47 18.85
March 29, 2020 23.23 8.43 0.72 3.74 80.92 2807 (0.09) 9.89 20.86
April 26, 2020 24.47 12.10 1.65 3.00 86.80 2975 (0.17) 10.07 32.18
May 31, 2020 25.71 12.12 1.27 1.29 90.12 2962 (0.31) 9.04 35.52
June 28, 2020 24.83 11.73 1.37 1.30 91.49 2946 (0.37) 6.15 38.06
July 26, 2020 24.33 11.08 1.66 1.46 92.61 2945 (0.44) 5.73 38.08
Aug. 2, 2020 24.35 10.66 1.57 1.48 92.60 2925 (0.55) 5.67 38.69
Aug. 9, 2020 24.27 10.57 1.43 1.50 92.97 2913 (0.58) 5.61 38.48
Aug. 16, 2020 24.23 10.61 1.44 1.50 93.39 2914 (0.58) 5.84 38.14
Aug. 23, 2020 24.11 10.50 1.40 1.52 93.51 2909 (0.62) 5.48 38.22
O/C--Overcollateralization. SPWARF--S&P Global Ratings weighted average rating factor.

Average junior overcollateralization (O/C) cushions gradually increased to 1.52% as of August 23 from a low of 1.12% in mid-June. Within the trustee reports we have processed as of August 23, 129 of the U.S. BSL CLOs rated by S&P Global Ratings are failing one or more of their junior tranche O/C tests across both reinvesting and amortizing CLO transactions.

Of the tranches placed on CreditWatch negative due to the COVID-19 pandemic, as of August 23 we had lowered our ratings on 219 tranches. We also removed from CreditWatch negative and affirmed our ratings on 74 tranches.

Table 3

U.S. CLO CreditWatch Negative Placements Post-COVID-19
As of Aug. 23, 2020
Rating category prior to action Affirmed and removed from CreditWatch negative One-notch DG Two-notch DG Three-notch DG Four-notch DG Five-notch DG Total DG from investment-grade to speculative-grade DG into 'CCC' category
'AAA'
'AA'
'A' 4 4
'BBB' 8 29 4 1 42 23
'BB' 19 94 24 18 2 3 160 4
'B' 47 36 4 87 38
Total 74 163 32 19 2 3 293 23 42
DG--Downgrade.

As of August 23, 301 tranches across 177 U.S. CLOs that we rate are on CreditWatch negative.

Table 4

U.S. CLO Tranche Ratings On CreditWatch Negative
(As of Aug. 23, 2020)
Current rating category Total ratings (March 2020) No. of tranche ratings on CreditWatch negative
'AAA' 1032
'AA' 861
'A' 712 12
'BBB' 687 52
'BB' 592 137
'B' 184 89
'CCC' 25 11
'CC' 1
Total 4390 301

Copy and paste the URL below into your browser to download the list of negative rating actions taken this year on U.S. CLO tranches as of Aug. 23, 2020, which we will update periodically as circumstances warrant:

https://www.spglobal.com/ratings/_division-assets/excel/105USCLOExposureAug23.xls

S&P Global Ratings acknowledges a high degree of uncertainty about the evolution of the coronavirus pandemic. The consensus among health experts is that the pandemic may now be at, or near, its peak in some regions but will remain a threat until a vaccine or effective treatment is widely available, which may not occur until the second half of 2021. We are using this assumption in assessing the economic and credit implications associated with the pandemic (see our research at www.spglobal.com/ratings). As the situation evolves, we will update our assumptions and estimates accordingly.

Related Research

This report does not constitute a rating action.

Primary Contact:Daniel Hu, FRM, New York + 1 (212) 438 2206;
daniel.hu@spglobal.com
Stephen A Anderberg, New York (1) 212-438-8991;
stephen.anderberg@spglobal.com
Robert E Schulz, CFA, New York (1) 212-438-7808;
robert.schulz@spglobal.com
Ramki Muthukrishnan, New York (1) 212-438-1384;
ramki.muthukrishnan@spglobal.com

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