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COMMENTS

Credit Trends: Risky Credits: U.S. And Canadian 'CCC' Issuers Drop Below Two-Year Average As Defaults Plunge

COMMENTS

Default, Transition, and Recovery: Corporate Defaults Fall Below Long-Term Average

COMMENTS

Credit Trends: U.S. Corporate Bond Yields As Of May 7, 2025

COMMENTS

Default, Transition, and Recovery: 2024 Annual U.S. Public Finance Default And Rating Transition Study

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Credit Trends: U.S. Corporate Bond Yields As Of April 30, 2025


Credit Trends: Risky Credits: U.S. And Canadian 'CCC' Issuers Drop Below Two-Year Average As Defaults Plunge

(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.)

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On This Month's Front Burner

A drop in distressed exchanges pushes down default rates

There were only two defaults from the region in June--in line with May and the lowest monthly tally since December 2018. With these defaults, the North American total so far 2021 is 27, less than half of last year's year-to date total of 88. The drop in defaults has been driven by a decrease in distressed exchanges, which have dominated defaults in the region since third-quarter 2020. We estimate the U.S. 12-month-trailing speculative-grade corporate default rate will fall to 3.8% in June 2021 from 4.7% in May 2021 (see " U.S.-Based GTT Communications Inc.'s Default Brings The 2021 Global Corporate Tally To 48 ," July 8, 2021).

Spreads remain tight despite inflationary pressures

North American financing conditions remain accommodative at every rating level, even for 'CCC' category and below issuers whose spreads remain tight despite a surge in inflation in June, weighing on consumer sentiment. U.S. 'CCC' and 'B' composite spreads narrowed slightly to 597 basis points (bps), and 377 bps, respectively. The U.S. economy continues to chug along at a faster pace amid improving mobility and state reopenings across most parts of the country (see " U.S. Real-Time Data: In A Sweet Spot ," July 9, 2021).

'CCC' issuance is at more than 2x 2020 year-to-date levels

Favorable market conditions, even at the lower rating levels, have allowed U.S. and Canadian 'CCC' and below rated corporate bond issuance for June 2021 to reach $30 billion, which is 2.4x higher than at this point in 2020. Meanwhile, 'B' rated issuance (excluding 'B+' ratings) through June stood 2.3x higher than at that point in 2020.

Net upgrades are highest in the 'CCC' rating category

Upgrades continue to far outpace downgrades in the 'CCC' rating category for the sixth consecutive month; '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 prepandemic (137) as downgrades into the rating category in 2020 still outweigh the upgrades. In June 2021, the upgrades out of the 'CCC' category were distributed across sectors, with three upgrades from the health care and one each from consumer products, aerospace and defense, and retail/restaurants. 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 14% in June (see chart 2).

Bids recover

The average bid of 'B' rated loans remained mostly steady since our last report at 99.28, as of June 30, 2021, while the bid for 'CCC' rated loans has rose by 0.55 bps to 92.76.

Media and entertainment and tech remain most exposed

By debt amount, much of 'CCC' sector exposure is in the media and entertainment and high technology sectors, with $46.5 billion and $43.37 billion each. However, in the high tech sector, debt is spread among a small number of issuers. The media and entertainment and consumer products sectors hold the highest 'CCC' exposure by issuer count with 71% and 87%, respectively, on negative bias and at risk for further downgrade or default.

CLOs end the first half of 2021 with positive momentum

Broadly syndicated loan (BSL) collateralized loan obligations (CLOs) finished the first half of 2021 with improving and stable credit metrics relative to the start of the year; pre-COVID CLOs experienced improving credit metrics while post-COVID CLOs continue to show stable performance. The upgrade to downgrade ratio of U.S. BSL CLO exposures remain elevated, with 15 issuers raised out of the 'CCC' category in the first quarter and another 21 issuers in second-quarter 2021. By midyear, most of the pre-COVID CLOs' 'CCC' exposures fell below the 7.5% trigger. In second-quarter 2021, most of the CLOs within the 2021 CLO Insights BSL Index experienced some par gain, reversing some of the par loss in the first quarter. The average index exposure to issuers with a negative outlook has declined to 20.6%, down from 32.4% at the start of the year (see table 3).

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Table 1

Downgrades into 'CCC' category beginning 2021
Rating Date Issuer Country Sector Rating to Rating from Debt amount (mil. $)
1/27/2021 Viking Cruises Ltd. (Viking Holdings Ltd.) U.S. Media/entertainment CCC+ B- 3,225
5/25/2021 GEO Group (The) Inc. U.S. Consumer products CCC+ B 2,734
4/1/2021 Epic Crude Services L.P. U.S. Utility CCC+ B- 1,175
5/12/2021 WaterBridge Operating LLC (WaterBridge Resources LLC) U.S. Utility CCC+ B- 1,000
4/9/2021 Ruby Pipeline LLC U.S. Utility CCC B- 825
2/26/2021 Dawn Acquisitions LLC (Infra Colodata Holdings LLC) U.S. Telecommunications CCC B- 550
4/16/2021 Cornerstone Chemical Co. U.S. Chemicals, packaging, and environmental services CCC+ B- 450
1/25/2021 PetroChoice Holdings Inc. U.S. Consumer products CCC+ B- 435
6/17/2021 Salient CRGT Inc. U.S. Aerospace & Defense CCC B- 420
4/8/2021 BEP Ulterra Holdings Inc. U.S. Oil and gas exploration/production CCC+ B- 415
3/19/2021 MVK Intermediate Holdings LLC U.S. Consumer products CCC+ B 335
5/11/2021 Overseas Shipholding Group Inc. U.S. Transportation CCC+ B- 325
1/29/2021 Terra-Gen Finance Co. LLC (Terra-Gen Power Holding II LLC) U.S. Utility CCC+ B- 320
5/6/2021 New Constellis Borrower LLC (New Constellis Holdings Inc.) U.S. Aerospace/defense CCC+ B- 260
Data as of June 30, 2021. Source: S&P Global Ratings.

Table 2

Upgrades From 'CCC' Category Beginning 2021
Issuer Country Sector Rating to Rating from Debt amount (mil. $)
6/17/2021 Community Health Systems Inc. U.S. Health care B- CCC+ 17,382
4/29/2021 Endeavor Operating Co. LLC U.S. Media/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/gas exploration and production B+ CCC+ 3,550
1/21/2021 Petco Holdings Inc. U.S. Retail/restaurants B- CCC+ 3,200
3/24/2021 SM Energy Co. U.S. Oil/gas exploration and production B- CCC+ 2,747
2/10/2021 Cengage Learning Holdings II Inc. U.S. Media/entertainment B- CCC+ 2,555
3/3/2021 Kenan Advantage Group Inc. U.S. Transportation B- CCC+ 2,398
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/entertainment B- CCC 1,872
6/3/2021 Heartland Dental LLC (Hadrian Merger Sub Inc.) U.S. Health care B- CCC+ 1,810
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/gas exploration and production B- CCC+ 1,760
2/18/2021 Mohegan Tribal Gaming Authority U.S. Media/entertainment B- CCC+ 1,696
3/31/2021 CPM Holdings Inc. U.S. Capital goods B- CCC+ 1,480
3/15/2021 NESCO Holdings Inc. U.S. Capital goods B CCC+ 1,395
5/6/2021 PMHC II Inc. U.S. Chemicals, packaging, and environmental services B- CCC+ 1,330
5/28/2021 ASP Unifrax Holdings Inc. U.S. Capital goods B- CCC+ 1,329
5/6/2021 Welbilt Inc. U.S. Capital goods B- CCC+ 1,325
Data as of June 30, 2021. Source: S&P Global Ratings.

Table 3

CLO BSL Index Metrics
(CLO Insights 2021 U.S. BSL Index)
BSL B-' Bucket CCC' bucket Nonperforming bucket CreditWatch Neg Outlook Neg
Jan-21 25.29% 7.64% 0.76% 1.62% 32.43%
Feb-21 25.21% 7.79% 0.53% 0.85% 32.11%
Mar-21 25.01% 7.82% 0.33% 1.19% 29.72%
Apr-21 25.31% 6.97% 0.36% 1.15% 26.49%
May-21 25.06% 6.51% 0.34% 0.76% 25.37%
Jun-21 25.39% 6.56% 0.25% 0.50% 23.00%
Jul-21 25.45% 6.18% 0.39% 0.73% 20.63%
Data as of July 1, 2021.

Related Research

This report does not constitute a rating action.

Credit Markets Research:Nicole Serino, New York + 1 (212) 438 1396;
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ramki.muthukrishnan@spglobal.com
Secondary Contact:Daniel Hu, FRM, New York + 1 (212) 438 2206;
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