(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.)
Key Takeaways
- As of Aug. 23, 2020, S&P Global Ratings has lowered its ratings on 219 U.S. CLO tranches across 134 CLO transactions by 1.4 notches on average, and it currently has 301 tranches issued by 177 CLO transactions on CreditWatch negative.
- Negative rating actions on U.S. corporate entities have slowed considerably since peaking in late March and early April, and more than 31% of U.S. BSL CLO collateral has been downgraded or placed on CreditWatch negative since early March.
- The lists of U.S. CLO tranche downgrades in 2020 and ratings currently on CreditWatch negative as of Aug. 23, 2020, can be downloaded here: https://www.spglobal.com/ratings/_division-assets/excel/105USCLOExposureAug23.xls
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
- Risky Credits: The 'CCC' Category Remains Large As Market Risks Ease, Aug. 24, 2020
- 75 'BBB' And 77 'BB' Category U.S. CLO Ratings Placed On Watch Negative, June 30, 2020
- Risky Credits: The Drop-Off To The 'CCC' Rating Category From 'B-' Still Looms Large, June 29, 2020
- COVID-19 Heat Map: Post-Crisis Credit Recovery Could Take To 2022 And Beyond For Some Sectors, June 24, 2020
- Envision Healthcare Corp. Upgraded To 'CCC' From 'SD', Debt Rating Actions Taken; Outlook Negative, May 4, 2020
- Envision Healthcare Corp. Downgraded To 'SD', Debt To 'D' On Distressed Exchange, April 28, 2020
- Mister Car Wash Holdings Inc. Upgraded To 'CCC+' From 'SD' Post Debt Restructuring; Outlook Negative, April 20, 2020
- Ratings On 155 Classes From 113 U.S. Reinvesting CLOs Placed On Watch Negative, April 17, 2020
- Economic Research: An Already Historic U.S. Downturn Now Looks Even Worse, April 16, 2020
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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