According to S&P Leveraged Commentary & Data (LCD), a total of 15 new issue middle-market (MM) collateralized loan obligations (CLOs) have closed in 2021 year to date, while another 17 have experienced either a refinancing or a reset. All of this is occurring against a backdrop of stable credit fundamentals, with the 64 CLOs in our middle-market CLO Insights index seeing a drop in exposure to defaulted obligors (which has declined by about half so far this year), stable par balances, and increasing junior overcollateralization (O/C) test cushions.
In keeping with the theme of stable credit fundamentals, MM CLO 'CCC' buckets have mostly remained range bound as some credit estimates have expired since the start of the year (and thus are counted as part of the 'CCC' bucket in table 1), while other 'CCC' exposures saw credit estimates increased to 'b-' (or higher) over the same period. Meanwhile, new issuers with newly assigned credit estimates continue to be added to this index of reinvesting MM CLO portfolios.
Table 1
| Middle-Market CLO Insights 2021 Index: Credit Metrics | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 'B-' (%) | CCC' bucket (%)(i) | Nonperforming category (%) | SPWARF(i) | Jr. O/C cushion (%) | Par (%) | % credit estimated | ||||||||||
| Start | 66.05 | 23.34 | 0.87 | 3926 | 5.24 | 0.00 | 73.65 | |||||||||
| 2/1/2021 | 65.78 | 23.96 | 0.80 | 3942 | 5.46 | (0.03) | 72.79 | |||||||||
| 3/1/2021 | 64.86 | 25.14 | 0.69 | 3956 | 5.55 | (0.00) | 72.13 | |||||||||
| 4/1/2021 | 64.57 | 25.50 | 0.65 | 3968 | 5.66 | 0.04 | 71.60 | |||||||||
| 5/1/2021 | 65.84 | 24.71 | 0.66 | 3964 | 5.79 | 0.08 | 71.58 | |||||||||
| 6/1/2021 | 66.88 | 23.99 | 0.59 | 3954 | 5.99 | 0.15 | 72.27 | |||||||||
| 7/6/2021 | 66.10 | 24.56 | 0.51 | 3964 | 6.16 | 0.21 | 71.75 | |||||||||
| 8/1/2021 | 65.61 | 25.13 | 0.46 | 3977 | 6.30 | 0.25 | 71.14 | |||||||||
| 9/1/2021 | 66.12 | 24.51 | 0.40 | 3966 | 6.43 | 0.25 | 71.85 | |||||||||
| (i)Includes obligors with expired credit estimates, which are treated as ‘CCC-‘ in our analysis. MM CLO--Middle-market collateralized loan obligation. SPWARF--S&P Global Ratings' weighted average rating factor. O/C--Overcollateralization. | ||||||||||||||||
Credit Estimates Of MM CLO Exposures: Refreshed, Expired, Or Replaced With New Issuers
At the start of the year, the 60-plus MM CLOs within our index had exposure to over 1,400 credit estimated issuers. In the first half of 2021, about 700 issuers had their credit estimates refreshed, with a large majority of these seeing no change. Of the obligors that did see a change in credit estimate, those seeing a lower estimate assigned very slightly outnumbered those seeing a higher estimate assigned. In addition, some obligors saw credit estimates expire, and thus, those are treated as 'ccc-' in table 1 above. As such, year to date, the S&P Global Ratings weighted average rating factor (SPWARF) values have increased slightly across the index.
Additionally, more than 230 issuers were assigned credit estimates for the first time in 2021, many of which found their way into the existing MM CLOs within this index, all of which are within their reinvestment period, and some of which have seen considerable portfolio turnover this year. Two-thirds of these newly assigned estimates this year are to smaller issuers with less than $25 million in EBITDA. The industry distribution of the new entrants is substantially the same as the industry distribution of existing MM CLO obligors. As expected, the industry distribution across the CLO MM Insights 2021 Index has not changed much since the start of the year. Exposure to tech- and healthcare-related issuers continue to make up a notable proportion of MM CLO exposures.
Sectors Exposures Across The MM CLO Insights Index Remain Almost Identical Compared To The Start Of 2021
The chart below shows the top 20 GIC exposures with the 2021 MM CLO Index. Sectors exposures across The MM CLO Insights Index remain almost identical compared to the start Of 2021.
Chart 1
This report does not constitute a rating action.
| Primary Credit Analysts: | Daniel Hu, FRM, New York + 1 (212) 438 2206; daniel.hu@spglobal.com |
| Stephen A Anderberg, New York + (212) 438-8991; stephen.anderberg@spglobal.com | |
| Ramki Muthukrishnan, New York + 1 (212) 438 1384; ramki.muthukrishnan@spglobal.com | |
| Secondary Contact: | Deegant R Pandya, New York + 1 (212) 438 1289; deegant.pandya@spglobal.com |
No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.
Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.
To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.
S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.
Any Passwords/user IDs issued by S&P to users are single user-dedicated and may ONLY be used by the individual to whom they have been assigned. No sharing of passwords/user IDs and no simultaneous access via the same password/user ID is permitted. To reprint, translate, or use the data or information other than as provided herein, contact S&P Global Ratings, Client Services, 55 Water Street, New York, NY 10041; (1) 212-438-7280 or by e-mail to: research_request@spglobal.com.