(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.)
Key Takeaways
- Risk and reward are both declining in the lowest rating categories as measured by ratings and spreads.
- The number of 'CCC' category ratings on U.S. and Canadian companies dipped to 190, as of April 30, 2021, from 234, at the start of the year, and 256 in May 2020.
- West Texas Intermediate (WTI) oil prices rose in April 2021 as the U.S. distress ratio improved.
- Issuance for 'B-' and lower issuers totaled $8.9 billion in April versus $704 million in April 2020.
- U.S. 'B' and 'CCC' composite spreads tightened further through April to 399 and 617 basis points (bps), respectively, suggesting continued favorable market conditions for very low rated issuers.
On This Month's Front Burner
Upgrades outpace downgrades--again. The 'CCC' rating category upgrades continue to outpace downgrades for the fifth consecutive month. The greatest number of upgrades in 2021 so-far, came from the media and entertainment sector (12) followed by oil and gas (10; with four upgrades in April, largely due to the recovery in oil prices), and retail and restaurants (5). The downgrade rate (the number of 'CCC' category and below rated downgrades divided by the total rating actions) ticked up to 27% in April (see chart 2).
'CCC' (and 'B/B-') rated corporate bond issuance booms. U.S. and Canadian 'CCC' and below rated corporate bond issuance for 2021 rose to $20.5 billion in April, 163% higher than a year earlier. While 'B' rated issuance (excluding 'B+' ratings) in first-quarter 2021 were nearly four times higher than its 2020 year-to-date level. Issuance in 2020 was largely investment grade, while 2021 so far has been mostly in the lower rating categories. We expect global corporate issuance to contract 2.25% this year (see "COVID-19 Impact: Key Takeaways From Our Articles," published April 7, 2021, on RatingsDirect)
Defaults slowed in first-quarter 2021. There were seven defaults in the U.S. and Canada region in April--in keeping with 2021's monthly tallies of single digits. This brought the total 2021 defaults in the region so far to 21, less than half of 2020's year-to-date total of 43. Two of the seven additions in April were from the oil and gas sector, and another two from consumer products companies.
Transitioning to 'CCC' slows to a crawl. Transitions into the 'CCC' rating category from 'B-' remained low at only 1% in April 2021, and transitions into 'B-' from 'B' ratings dropped to zero. The negative bias (have a negative outlook or CreditWatch placement with negative implications) of 'CCC' rated issuers has lowered to 73%, the lowest since 2018, but this still indicates potential downgrades. The negative bias for 'B-' rated issuers have also dipped slightly to 22% in April 2021--marginally higher than its February 2020 value of 20%.
Spreads tighten in 'CCC' category (again). U.S. 'CCC' and 'B' composite spreads dropped to prepandemic levels in December 2020. While the 'CCC' spreads narrowed further to 617 bps, the lowest value since 2019, whereas the 'B' spread has also narrowed slightly to 399 bps. Despite rising inflation, investors are still willing to take on additional risk.
Bids recover. The average bid of 'B' rated loans has improved slightly since our last report to 98.9, as of March 31, 2021, while the bid for 'CCC' rated loans has increased to 92.0.
CLO collateral actions. As the corporate loan market recovers from the credit effects of the pandemic, we have seen a modest but material improvement in the credit metrics of U.S. broadly syndicated loan (BSL) collateralized loan obligations (CLOs), trending since the second half of 2020. For issuers with loans held in U.S., BSL CLOs during first-quarter 2021, rating upgrades have outpaced downgrades by about two to one (71 to 35) and we raised our ratings on a handful of loan issuers in the 'CCC' category.
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Table 1 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Top 20 Rating Changes To 'CCC' From 'B-' By Debt Amount (YTD) | ||||||||||||||
Rating date | Issuer | Country | Sector | Rating to | Rating from | Debt amount (mil. $) | ||||||||
4/15/2020 | Finastra Ltd. | Cayman Islands | High technology | CCC+ | B- | 36,029 | ||||||||
3/24/2020 | Bombardier Inc. | Canada | Aerospace and defense | CCC+ | B- | 9,287 | ||||||||
4/17/2020 | First Quantum Minerals Ltd. | Canada | Metals, mining, and steel | CCC+ | B- | 6,000 | ||||||||
7/21/2020 | Clear Channel Outdoor Holdings Inc. | U.S. | Media and entertainment | CCC+ | B- | 5,835 | ||||||||
4/27/2020 | Hertz Global Holdings Inc. | U.S. | Transportation | CCC- | B- | 5,050 | ||||||||
5/14/2020 | Nabors Industries Ltd | Bermuda | Oil and gas exploration and production | CCC+ | B- | 3,725 | ||||||||
4/10/2020 | GTT Communications Inc. | U.S. | Telecommunications | CCC+ | B- | 3,415 | ||||||||
4/8/2020 | Advantage Solutions Inc. | U.S. | Consumer products | CCC+ | B- | 3,345 | ||||||||
1/27/2021 | Viking Cruises Ltd. (Viking Holdings Ltd) | U.S. | Media and entertainment | CCC+ | B- | 3,225 | ||||||||
4/8/2020 | Varsity Brands Holding Co Inc. | U.S. | Consumer products | CCC+ | B- | 2,800 | ||||||||
3/27/2020 | CDS Group | Canada | Media and entertainment | CCC- | B- | 2,745 | ||||||||
9/4/2020 | Cengage Learning Holdings II Inc. | U.S. | Media and entertainment | CCC+ | B- | 2,580 | ||||||||
9/4/2020 | McGraw-Hill Education Inc. | U.S. | Media and entertainment | CCC+ | B- | 2,125 | ||||||||
1/3/2020 | Aveanna Healthcare LLC (Aveanna Healthcare Holdings Inc.) | U.S. | Health care | CCC+ | B- | 2,091 | ||||||||
4/23/2020 | FXI Holdings Inc. | U.S. | Chemicals, packaging, and environmental services | CCC+ | B- | 2,075 | ||||||||
8/19/2020 | Wesco Aircraft Holdings Inc. (Wolverine Intermediate Holding Corp.) | U.S. | Aerospace and defense | CCC+ | B- | 2,075 | ||||||||
4/8/2020 | Helix Acquisition Holdings Inc. | U.S. | Capital goods | CCC+ | B- | 2,055 | ||||||||
4/17/2020 | Life Time Inc. | U.S. | Media and entertainment | CCC+ | B- | 1,984 | ||||||||
6/12/2020 | AVSC Holding Corp. | U.S. | Media and entertainment | CCC | B- | 1,980 | ||||||||
4/23/2020 | Syniverse Holdings Inc. | U.S. | Telecommunications | CCC+ | B- | 1,922 | ||||||||
Data as of April 30, 2021. Source: S&P Global Ratings. |
Table 2
Top 20 Rating Upgrades From 'CCC' Category | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Rating date | Issuer | Country | Sector | Rating to | Rating from | Debt amount (Mil. $) | ||||||||
10/7/2020 | Uniti Group Inc. | U.S. | Telecommunications | B- | CCC- | 10,216 | ||||||||
4/29/2021 | Endeavor Operating Co. LLC | U.S. | Media and entertainment | B | CCC+ | 9,172 | ||||||||
1/21/2021 | NGL Energy Partners L.P. | U.S. | Utility | B | CCC+ | 8,200 | ||||||||
4/9/2021 | First Quantum Minerals Ltd | Canada | Metals, mining, and steel | B | CCC+ | 5,900 | ||||||||
4/15/2021 | MEG Energy Corp. | Canada | Oil and gas | B+ | CCC+ | 3,550 | ||||||||
12/15/2020 | McGraw-Hill Education Inc. | U.S. | Media and entertainment | B- | CCC+ | 3,520 | ||||||||
1/21/2021 | Petco Holdings Inc. | U.S. | Retail/Restaurants | B- | CCC+ | 3,200 | ||||||||
3/24/2021 | SM Energy Co. | U.S. | Oil and gas | B- | CCC+ | 2,747 | ||||||||
2/10/2021 | Cengage Learning Holdings II Inc. | U.S. | Media and entertainment | B- | CCC+ | 2,555 | ||||||||
11/30/2020 | CT Technologies Intermediate Holdings Inc. | U.S. | Media and entertainment | B- | CCC+ | 2,532 | ||||||||
3/3/2021 | Kenan Advantage Group Inc. | U.S. | Transportation | B- | CCC+ | 2,398 | ||||||||
7/21/2020 | Kronos Acquisition Holdings Inc. | U.S. | Consumer products | B- | CCC+ | 2,290 | ||||||||
10/30/2020 | Advantage Solutions Inc. | U.S. | Consumer products | B | CCC+ | 2,100 | ||||||||
3/16/2021 | FXI Holdings Inc. | U.S. | Chemicals, packaging, and environmental services | B- | CCC+ | 2,075 | ||||||||
1/7/2021 | Urban One Inc. | U.S. | Media and entertainment | B- | CCC | 1,872 | ||||||||
9/25/2020 | New Academy Holding Co. LLC | U.S. | Retail/Restaurants | B- | CCC+ | 1,825 | ||||||||
3/31/2021 | Priority Holdings LLC (Priority Technology Holdings Inc.) | U.S. | High technology | B- | CCC+ | 1,777 | ||||||||
3/29/2021 | Vine Oil & Gas L.P. (Vine Energy Inc.) | U.S. | Oil and gas | B- | CCC+ | 1,760 | ||||||||
8/31/2020 | LTI Holdings Inc. | U.S. | Capital goods | B- | CCC+ | 1,740 | ||||||||
2/18/2021 | Mohegan Tribal Gaming Authority | U.S. | Media and entertainment | B- | CCC+ | 1,696 | ||||||||
Data as of April 30, 2021. Source: S&P Global Ratings. |
Related Research
- COVID-19 Impact: Key Takeaways From Our Articles, May 6, 2021
- The U.S. Distress Ratio Drops To Its Lowest Level In 14 Years, April 27, 2021
- CLO Insights 2021 U.S. BSL Index: Credit Metrics Have Improved For Three Quarters, April 26. 2021
- Potential Downgrades Ebb To Pre-Pandemic Levels, April 15, 2021
- U.S. Speculative-Grade Corporate Default Rate Forecast For Year-End 2021 Falls To 5.5%, March 30, 2021
- Credit Markets Update North America Q2 2021, March 30, 2021
This report does not constitute a rating action.
Credit Markets Research: | Nicole Serino, New York + 1 (212) 438 1396; nicole.serino@spglobal.com |
Sudeep K Kesh, New York + 1 (212) 438 7982; sudeep.kesh@spglobal.com | |
Leveraged Finance: | 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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