(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
- The number of 'CCC' category ratings on U.S. and Canadian companies declined to a 15-month low of 182 as of May 31, 2021.
- Over 70% of 'CCC' rating actions so far in 2021 have been upgrades--the highest among speculative-grades rating categories.
- Accommodative financing conditions have allowed for year-to-date issuance in the 'B- and Below' category of US$50.85 billion (compared to US$19.16 billion in 2020).
- The three-month weighted average for monthly transitions from 'B-' to 'CCC' stood at 0.40%, well below the long-term average of 1.24%.
On This Month's Front Burner
Net upgrades are highest in the 'CCC' rating category.
Upgrades have far outpaced downgrades in the 'CCC' rating category for the sixth consecutive month as 'CCC' net upgrades (upgrades minus downgrades) remain the highest among all other rating categories (see chart 1). Although recovering, the number of 'CCC' rated issuers remains higher than it was pre-pandemic (137), as downgrades into the rating category in 2020 still outweigh the upgrades. In May 2021, the upgrades out of the 'CCC' category were distributed across sectors, with two upgrades each from the capital goods, health care, and retail/restaurants sectors, and one each from chemicals, packaging, and environmental services; consumer products; forest products and building materials; and oil and gas. The downgrade rate (defined as the number of 'CCC' category and below rated downgrades divided by the total rating actions to and from the 'CCC' rating category) ticked up to 29% in May (see chart 2).
'CCC' issuance is 1.5x 2020 year-to-date and 'B/B-' is 3x.
Favorable market conditions, even at the lower rating levels, have allowed U.S. and Canadian 'CCC' and below rated corporate bond issuance for May 2021 to reach US$4.5 billion. Although a slight dip from the US$5.9 billion in April, year-to-date issuance is still 150% higher than at this point last year. Meanwhile, 'B' rated issuance (excluding 'B+' ratings) through May stood a little over three times higher than at that point in 2020.
Defaults continue to slow.
There were only two defaults from the region in May, the lowest monthly tally since December 2018, and the U.S. default rate continues to slow. With these defaults, the North American total so far 2021 is 25, less than half of last year's year-to date total of 66. The U.S. speculative grade default rate is expected to fall to 4% by March 2022. (see "The U.S. Speculative-Grade Corporate Default Rate Could Fall To 4% By March 2022", May 26, 2021).
Transitioning to 'CCC' slows to a crawl.
Transitions into the 'CCC' rating category from 'B-' remained low at only 1.3% in May 2021 while transitions into 'B-' from 'B' ratings grew only slightly to 0.2% (this is, however, meager compared to the 2.2% long-term weighted average). The negative bias--issuers with a negative outlook or CreditWatch placement with negative implications--of 'CCC' rated issuers has lowered to 71%, the lowest since 2015. The negative bias for 'B-' rated issuers has also dropped slightly to 18% in May 2021, the lowest since September 2019.
Spreads do not reflect inflation concerns.
U.S. 'CCC' and 'B' composite spreads were largely steady in May 2021 with 'CCC' spreads widening slightly to 626 basis points (bps), and the 'B' spread narrowing further to 397 bps. If there are rising concerns of inflation, they are not being reflected in the numbers.
Bids recover.
The average bid of 'B' rated loans has improved slightly since our last report to 99.3, as of May 28, 2021, while the bid for 'CCC' rated loans has increased to 92.2.
Media and entertainment and tech remain most CCC exposed.
By debt amount, much of 'CCC' sector exposure is in the media and entertainment and high technology sectors, with US$47 billion and US$43 billion each. However, in the high technology sector, debt is spread across a small number of issuers. The media and entertainment and consumer products sectors hold the highest 'CCC' exposure by issuer count with 74% and 88% on negative bias and at risk for further downgrade or default.
CLO collateral actions remain positive.
Broadly syndicated loan (BSL) CLOs recorded another month of stable to improving credit metrics in May. While a growing number of CLO exposures are still getting upgraded out of the 'CCC' bucket, the pace of 'CCC' exposure reduction slowed somewhat in May partially due to some issuers getting upgraded out of the non-perform category and into the 'CCC' category in May. Across the 2021 CLO Insights BSL Index, the proportion of CLO exposures with a negative rating bias--Outlook negative or CreditWatch negative--continues to decline to new lows for the year, down to 23.0% and 0.5%, respectively, from 32.4% and 1.6% at the start of the year (see table 3).
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Table 1
Top 20 Rating Changes To 'CCC' From 'B-' By Debt Amount (Beginning 2020) | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Rating date | Issuer | Country | Sector | Rating to | Rating from | Debt amount (mil. US$) | ||||||||
4/15/2020 | Finastra Ltd. | Cayman Islands | High technology | CCC+ | B- | 36,029 | ||||||||
4/13/2020 | Endeavor Operating Company, LLC | United States | Media and entertainment | CCC+ | B | 10,840 | ||||||||
3/24/2020 | Bombardier Inc. | Canada | Aerospace and defense | CCC+ | B- | 9,287 | ||||||||
3/6/2020 | Whiting Petroleum Corp. | United States | Oil and gas exploration and production | CCC+ | BB- | 6,437 | ||||||||
4/17/2020 | First Quantum Minerals Ltd | Canada | Metals, mining and steel | CCC+ | B- | 6,000 | ||||||||
7/21/2020 | Clear Channel Outdoor Holdings Inc. | United States | Media and entertainment | CCC+ | B- | 5,835 | ||||||||
4/2/2020 | AMC Entertainment Holdings Inc. | United States | Media and entertainment | CCC- | B | 5,569 | ||||||||
4/27/2020 | Hertz Global Holdings Inc. | United States | Transportation | CCC- | B- | 5,050 | ||||||||
11/24/2020 | NGL Energy Partners LP | United States | Utility | CCC+ | B+ | 4,100 | ||||||||
4/1/2020 | MEG Energy Corp. | Canada | Oil and gas exploration and production | CCC+ | B+ | 3,750 | ||||||||
5/14/2020 | Nabors Industries Ltd | Bermuda | Oil and gas exploration and production | CCC+ | B- | 3,725 | ||||||||
4/10/2020 | GTT Communications, Inc. | United States | Telecommunications | CCC+ | B- | 3,415 | ||||||||
3/19/2020 | Party City Holdings, Inc. (PC Nextco Holdings LLC) | United States | Retail/Restaurants | CCC+ | B | 3,401 | ||||||||
4/8/2020 | Advantage Solutions Inc. | United States | Consumer products | CCC+ | B- | 3,345 | ||||||||
1/27/2021 | Viking Cruises Ltd. (Viking Holdings Ltd) | United States | Media and entertainment | CCC+ | B- | 3,225 | ||||||||
4/8/2020 | Varsity Brands Holding Co Inc. | United States | Consumer products | CCC+ | B- | 2,800 | ||||||||
3/27/2020 | CDS Group | Canada | Media and entertainment | CCC- | B- | 2,745 | ||||||||
5/25/2021 | GEO Group (The) Inc. | United States | Consumer products | CCC+ | B | 2,734 | ||||||||
3/30/2020 | Ascent Resources Utica Holdings, LLC | United States | Oil and gas exploration and production | CCC+ | B | 2,700 | ||||||||
9/4/2020 | Cengage Learning Holdings II Inc. | United States | Media and entertainment | CCC+ | B- | 2,580 | ||||||||
Data as of May 31, 2021. Source: S&P Global Ratings. |
Table 2
Top 20 Rating Upgrades From 'CCC' Category (Beginning 2020) | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Rating date | Issuer | Country | Sector | Rating to | Rating from | |||||||
10/7/2020 | Uniti Group Inc. | U.S. | Telecommunications | B- | CCC- | |||||||
4/29/2021 | Endeavor Operating Company, LLC | U.S. | Media and entertainment | B | CCC+ | |||||||
1/21/2021 | NGL Energy Partners LP | U.S. | Utility | B | CCC+ | |||||||
4/9/2021 | First Quantum Minerals Ltd | Canada | Metals, mining and steel | B | CCC+ | |||||||
4/15/2021 | MEG Energy Corp. | Canada | Oil and gas | B+ | CCC+ | |||||||
12/15/2020 | McGraw-Hill Education, Inc. | U.S. | Media and entertainment | B- | CCC+ | |||||||
1/21/2021 | Petco Holdings Inc. | U.S. | Retail/restaurants | B- | CCC+ | |||||||
3/24/2021 | SM Energy Company | U.S. | Oil and gas | B- | CCC+ | |||||||
2/10/2021 | Cengage Learning Holdings II Inc. | U.S. | Media and entertainment | B- | CCC+ | |||||||
11/30/2020 | CT Technologies Intermediate Holdings Inc. | U.S. | Media and entertainment | B- | CCC+ | |||||||
3/3/2021 | Kenan Advantage Group Inc. | U.S. | Transportation | B- | CCC+ | |||||||
7/21/2020 | Kronos Acquisition Holdings Inc. | U.S. | Consumer products | B- | CCC+ | |||||||
10/30/2020 | Advantage Solutions Inc. | U.S. | Consumer products | B | CCC+ | |||||||
3/16/2021 | FXI Holdings, Inc. | U.S. | Chemicals, packaging and environmental services | B- | CCC+ | |||||||
1/7/2021 | Urban One, Inc. | U.S. | Media and entertainment | B- | CCC | |||||||
9/25/2020 | New Academy Holding Co. LLC | U.S. | Retail/restaurants | B- | CCC+ | |||||||
3/31/2021 | Priority Holdings, LLC (Priority Technology Holdings, Inc.) | U.S. | High technology | B- | CCC+ | |||||||
3/29/2021 | Vine Oil & Gas LP (Vine Energy Inc.) | U.S. | Oil and gas | B- | CCC+ | |||||||
8/31/2020 | LTI Holdings, Inc. | U.S. | Capital goods | B- | CCC+ | |||||||
2/18/2021 | Mohegan Tribal Gaming Authority | U.S. | Media and entertainment | B- | CCC+ | |||||||
Data as of May 31, 2021. Source: S&P Global Ratings. |
Table 3
CLO Insights 2021 Broadly Syndicated Loan Index Metrics (%) | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
'B-' bucket | 'CCC' bucket | Non-perform bucket | CreditWatch negative | Outlook negative | ||||||||
Jan-21 | 25 | 8 | 1 | 2 | 32 | |||||||
Feb-21 | 25 | 8 | 1 | 1 | 32 | |||||||
Mar-21 | 25 | 8 | 0 | 1 | 30 | |||||||
Apr-21 | 25 | 7 | 0 | 1 | 26 | |||||||
May-21 | 25 | 7 | 0 | 1 | 25 | |||||||
Jun-21 | 25 | 7 | 0 | 1 | 23 | |||||||
Data as of May 31, 2021. |
Related Research
- The U.S. Speculative-Grade Corporate Default Rate Could Fall To 4% By March 2022, May 26, 2021
- COVID-19 Impact: Key Takeaways From Our Articles, May 6, 2021
- U.S. Leveraged Finance Q1 2021 Update: As Issuers And Investors Collaborate To Keep Markets Active, Where Does The Excess Cash Go?, 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
- 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 |
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 | |
Secondary Contact: | Daniel Hu, FRM, New York + 1 (212) 438 2206; daniel.hu@spglobal.com |
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