(Editor's Note: Our "Risky Credits" series focuses on U.S. and Canadian 'CCC' category rated corporate issuers, as well as issuers rated 'B-', because most defaults are typically by issuers rated in the 'CCC' category or rated 'B-' with a negative outlook or on CreditWatch negative.)
Key Takeaways
- The number of 'CCC+ and below' rated corporate issuers increased to 140 in September 2022 from 136 in June 2022.
- The number of 'B-'rated issuers with a negative outlook and CreditWatch also increased to 52 in September 2022 from 33 in June 2022 while outstanding debt rated 'B-' with a negative outlook increased to $68 billion from $37 billion in the same period.
- 90% of U.S. and Canadian consumer products issuers rated 'CCC+' and below have a negative outlook or are on CreditWatch as companies have seen a pullback in consumer spending due to higher prices and fear of recession.
Key Highlights In September
The 'CCC+ and below' rated population will likely increase in the fourth quarter as the number of risky 'B-' issuers is rapidly increasing (see chart 1). The number of 'B-' with a negative outlook and CreditWatch jumped by nearly 60% since June, with a net 19 additions amounting to US$31 billion in debt outstanding (see chart 2). Thus, the negative bias of the 'B-' rated issuers increased to 12.2% from 7.7%, and the downward transition (3-month trailing) from 'B' to 'B-' doubled to 2.4% from 1.2% in the last quarter.
The largest percentage of issuers added to the 'B-' tally were in the media and entertainment sector. Many issuers in the sector saw some post-pandemic positive momentum in the first half of 2022 but are beginning to feel the effects of higher inflation eroding purchasing power and limiting consumer spending. As we do not expect economic or financing conditions to improve in the near term, we can expect to see a continued upward trend in the number of 'CCC+' and below rated issuers in the region and, thus, an increased risk for defaults.
Chart 1
Chart 2
Consumer products sector is the most exposed to default risk. The consumer products sector led with the most additions into the 'CCC+ and below' rating category last quarter. The consumer products sector now has the most 'CCC+ and below' debt exposure, with roughly $24.1 billion in rated debt-- 90% of which has a negative bias.
Chart 3
The U.S. speculative grade default rate could reach 3.5% by June 2023. We expect the U.S. trailing 12-month speculative grade corporate default rate to reach 3.5% by June 2023, from 1.4% in June 2022. To reach this baseline forecast, 65 speculative grade companies would need to default. So far in 2022 we have seen an aggregate of 30 defaults in North America through the end of September--still lower than its previous year-to-date level.
CLO credits show marginal deterioration. U.S. broadly syndicated loan (BSL) collateralized loan obligation (CLO) credit metrics have hit an inflection point in recent months and started to turn towards the negative. U.S. BSL CLO collateral pools have seen their average 'CCC' exposure tick up in each of the past couple of months after hitting a low of 4.0% in August. Negative corporate rating outlooks--a key forward-looking indicator of potential changes to the credit landscape--hit a low of 9.53% in U.S. BSL CLO collateral pools back in May and have been creeping upward each month since. However, given these are actively managed vehicles, managers have the option to trade rebalance their portfolios.
Table 1
CLO BSL Index Metrics (CLO Insights 2022 U.S. BSL Index) | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
BSL | 'B-' bucket | 'CCC' bucket | Non-perform bucket | CreditWatch Neg | Outlook Neg | |||||||
Jan-22 | 26.41 | 4.94 | 0.17 | 0.88 | 12.33 | |||||||
Feb-22 | 27.16 | 4.27 | 0.37 | 0.28 | 11.94 | |||||||
Mar-22 | 27.09 | 4.26 | 0.39 | 0.11 | 11.35 | |||||||
Apr-22 | 27.44 | 4.17 | 0.13 | 1.06 | 10.86 | |||||||
May-22 | 27.76 | 4.26 | 0.14 | 1.20 | 9.83 | |||||||
Jun-22 | 27.70 | 4.14 | 0.20 | 1.27 | 10.46 | |||||||
Jul-22 | 28.59 | 4.01 | 0.35 | 1.35 | 11.08 | |||||||
Aug-22 | 28.70 | 4.00 | 0.34 | 1.46 | 11.53 | |||||||
Sep-22 | 29.00 | 4.21 | 0.59 | 1.03 | 12.20 | |||||||
Oct-22 | 28.85 | 4.40 | 0.50 | 1.16 | 13.36 | |||||||
BSL CLO--Broadly syndicated loan collateralized loan obligation. Data as of Sept. 30, 2022. |
Consumer products sector with a weighted average adjusted leverage of 20.5x is most exposed to a cyclical downturn. The other highly cyclical sectors with high leverage are business and consumer services, media/entertainment, and cap goods could see higher topline and margin pressure as we proceed into early 2023. Real estate and chemicals sectors lead with the highest median leverage but only on one issuer each so sector exposure is minimal.
Chart 4
Table 2
Downgrades To 'CCC/C' Rating Category In 2022 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Rating date | Issuer | Country | Sector | Rating to | Rating rrom | Debt (U.S. $ mil.) | ||||||||
8/1/2022 | Bausch Health Cos. Inc. | Canada | Health Care | CCC+ | B | $44,402 | ||||||||
4/14/2022 | Talen Energy Supply LLC (Talen Energy Corp.) | U.S. | Utilities | CCC | B- | $6,329 | ||||||||
5/3/2022 | Intrado Corp. | U.S. | Telecommunications | CCC+ | B- | $5,407 | ||||||||
3/10/2022 | VEON Ltd. | Bermuda | Telecommunications | CCC+ | BB+ | $5,306 | ||||||||
8/24/2022 | Artera Services, LLC | U.S. | Capital Goods | CCC+ | B- | $3,952 | ||||||||
9/12/2022 | Brand Industrial Services Inc., | U.S. | Capital Goods | CCC+ | B- | $3,825 | ||||||||
5/11/2022 | Diebold Nixdorf Inc. | U.S. | High Technology | CCC+ | B- | $3,207 | ||||||||
3/31/2022 | Monitronics International Inc. | U.S. | Media & Entertainment | CCC+ | B- | $3,123 | ||||||||
7/29/2022 | Avaya Holdings Corp. | U.S. | High Technology | CCC | B- | $2,943 | ||||||||
8/12/2022 | Party City Holdings Inc., (PC Nextco Holdings LLC) | U.S. | Retail/Restaurants | CCC+ | B- | $2,923 | ||||||||
9/12/2022 | U.S. Renal Care Inc. | U.S. | Health Care | CCC+ | B- | $2,330 | ||||||||
5/19/2022 | Rite Aid Corp. | U.S. | Retail/Restaurants | CCC+ | B- | $2,269 | ||||||||
8/23/2022 | Audacy Inc. | U.S. | Media & Entertainment | CCC+ | B- | $1,780 | ||||||||
9/23/2022 | Wheel Pros Inc., | U.S. | Automotive | CCC+ | B- | $1,540 | ||||||||
7/29/2022 | Weber Inc. | U.S. | Consumer Products | CCC+ | B | $1,500 | ||||||||
8/22/2022 | Bed Bath & Beyond Inc. | U.S. | Retail/Restaurants | CCC | B- | $1,500 | ||||||||
3/11/2022 | Logan Group Co. Ltd. | Cayman Islands | Homebuilders/Real Estate Co. | CCC- | B- | $1,280 | ||||||||
9/29/2022 | National CineMedia Inc. | U.S. | Media & Entertainment | CCC | B- | $1,220 | ||||||||
9/19/2022 | Five Point Holdings, LLC | U.S. | Homebuilders/Real Estate Co. | CCC+ | B- | $1,200 | ||||||||
2/25/2022 | Cooper-Standard Holdings Inc., | U.S. | Automotive | CCC+ | B- | $990 | ||||||||
5/26/2022 | TecoStar Holdings Inc., | U.S. | Health Care | CCC+ | B- | $950 | ||||||||
5/3/2022 | Carestream Health Inc. | U.S. | Health Care | CC | B- | $948 | ||||||||
5/25/2022 | Carrols Restaurant Group Inc., | U.S. | Retail/Restaurants | CCC+ | B- | $800 | ||||||||
2/25/2022 | 8th Avenue Food & Provisions Inc., | U.S. | Consumer Products | CCC+ | B- | $750 | ||||||||
6/17/2022 | Canopy Growth Corp. | Canada | Consumer Products | CCC | B- | $750 | ||||||||
7/18/2022 | IXS Holdings Inc., | U.S. | Automotive | CCC+ | B- | $620 | ||||||||
9/30/2022 | Lucky Bucks, LLC | U.S. | Media & Entertainment | CCC | B | $555 | ||||||||
8/17/2022 | Traeger Inc., | U.S. | Consumer Products | CCC+ | B | $510 | ||||||||
4/27/2022 | Phoenix Services International LLC | U.S. | Metals, Mining & Steel | CCC+ | B | $465 | ||||||||
6/8/2022 | P&L Development Holdings, LLC | U.S. | Consumer Products | CCC+ | B- | $465 | ||||||||
4/14/2022 | NSA International, LLC | U.S. | Consumer Products | CCC | B- | $450 | ||||||||
1/31/2022 | Halo Buyer Inc. | U.S. | Consumer Products | CCC+ | B- | $440 | ||||||||
2/11/2022 | INW Manufacturing, LLC | U.S. | Consumer Products | CCC+ | B- | $440 | ||||||||
4/14/2022 | CoolSys Inc., | U.S. | Consumer Products | CCC+ | B- | $440 | ||||||||
6/3/2022 | CareerBuilder, LLC | U.S. | Media & Entertainment | CCC | B- | $415 | ||||||||
3/22/2022 | PlayPower Holdings Inc. | U.S. | Media & Entertainment | CCC+ | B- | $400 | ||||||||
9/2/2022 | Fly Leasing Ltd. | Bermuda | Transportation | CCC- | B- | $391 | ||||||||
8/19/2022 | QualTek LLC | U.S. | Capital Goods | CCC+ | B- | $380 | ||||||||
3/15/2022 | The Cleaver-Brooks Co. Inc., | U.S. | Capital Goods | CCC | B- | $375 | ||||||||
9/16/2022 | Blue Ribbon, LLC (Blue Ribbon Intermediate Holdings LLC) | U.S. | Consumer Products | CCC+ | B- | $368 | ||||||||
2/9/2022 | Lannett Co. Inc., | U.S. | Health Care | CCC+ | B- | $350 | ||||||||
5/12/2022 | pH Beauty Holdings I Inc., | U.S. | Consumer Products | CCC+ | B- | $340 | ||||||||
2/11/2022 | Moran Foods, LLC (SAL Acquisition Corp.) | U.S. | Retail/Restaurants | CCC+ | B- | $334 | ||||||||
4/1/2022 | CNG Holdings Inc., | U.S. | Financial Institutions | CCC+ | B- | $310 | ||||||||
3/29/2022 | Skillz Inc. | U.S. | Media & Entertainment | CCC+ | B- | $300 | ||||||||
3/18/2022 | JHW Alphia Holdings Inc. | U.S. | Consumer Products | CCC+ | B- | $285 | ||||||||
8/26/2022 | Sierra Enterprises LLC | U.S. | Consumer Products | CCC+ | B- | $282 | ||||||||
6/23/2022 | Vida Capital Inc., | U.S. | Financial Institutions | CCC | B- | $275 | ||||||||
2/7/2022 | Data Axle Inc. | U.S. | Media & Entertainment | CCC | B- | $250 | ||||||||
9/9/2022 | UC Holdings Inc. (Chassix Holdings Inc.,) | U.S. | Automotive | CCC+ | B- | $225 | ||||||||
9/12/2022 | Wahoo Fitness Acquisition LLC | U.S. | Consumer Products | CCC | B- | $225 | ||||||||
8/19/2022 | Array Midco Corp., | Canada | Consumer Products | CCC+ | B- | $27 | ||||||||
Source: S&P Global Ratings. Data as of Sept. 30, 2022. |
Table 3
Upgrades From 'CCC' Category In 2022 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Rating date | Issuer | Country | Sector | Rating to | Rating from | Debt (U.S. $ mil.) | ||||||||
8/23/2022 | Bombardier Inc. | Canada | Aerospace & Defense | B- | CCC+ | $6,360 | ||||||||
2/17/2022 | Nabors Industries Ltd. | Bermuda | Oil & Gas Exploration & Production | B- | CCC+ | $5,101 | ||||||||
5/23/2022 | Varsity Brands Holding Co. Inc. | U.S. | Consumer Products | B- | CCC+ | $3,100 | ||||||||
1/18/2022 | Syniverse Holdings Inc., (Syniverse Technologies Corp.) | U.S. | Telecommunications | B- | CCC+ | $2,922 | ||||||||
2/4/2022 | Apex Tool Group, LLC | U.S. | Forest Products & Building Materials | B- | CCC | $2,729 | ||||||||
4/5/2022 | DTI Holdco Inc., | U.S. | Media & Entertainment | B- | CCC+ | $2,155 | ||||||||
4/4/2022 | KUEHG Corp. | U.S. | Media & Entertainment | B- | CCC+ | $1,387 | ||||||||
8/17/2022 | Peabody Energy Corp. | U.S. | Metals, Mining & Steel | B- | CCC+ | $1,382 | ||||||||
6/23/2022 | Fitness International, LLC | U.S. | Media & Entertainment | B- | CCC+ | $1,275 | ||||||||
6/10/2022 | Spectacle Bidco Holdings Inc. | Canada | Media & Entertainment | B- | CCC+ | $1,232 | ||||||||
1/12/2022 | National CineMedia Inc. | U.S. | Media & Entertainment | B- | CCC+ | $1,220 | ||||||||
7/29/2022 | Hovnanian Enterprises Inc. | U.S. | Homebuilders/Real Estate Co. | B- | CCC+ | $1,166 | ||||||||
1/20/2022 | Electronics for Imaging Inc., | U.S. | High Technology | B- | CCC+ | $1,100 | ||||||||
7/8/2022 | WaterBridge Operating LLC (WaterBridge Resources, LLC) | U.S. | Oil & Gas | B- | CCC+ | $1,000 | ||||||||
6/10/2022 | Spring Education Group Inc. | U.S. | Media & Entertainment | B- | CCC+ | $866 | ||||||||
9/23/2022 | SIRVA Inc. | U.S. | Transportation | B- | CCC+ | $850 | ||||||||
7/28/2022 | Vantage Specialty Chemicals Inc. | U.S. | Chemicals, Packaging & Environmental Services | B- | CCC+ | $758 | ||||||||
4/4/2022 | Learning Care Group (US) No. 2 Inc. (Learning Care Group (US) Inc.) | U.S. | Media & Entertainment | B- | CCC+ | $710 | ||||||||
5/13/2022 | Jazz Acquisition Inc. (Wencor Group LLC) | U.S. | Aerospace & Defense | B- | CCC+ | $610 | ||||||||
2/25/2022 | Yellow Corp. | U.S. | Transportation | B- | CCC+ | $600 | ||||||||
8/25/2022 | JSG I Inc. | U.S. | Capital Goods | B- | CCC+ | $460 | ||||||||
4/25/2022 | Cornerstone Chemical Co. | U.S. | Chemicals, Packaging & Environmental Services | B- | CCC+ | $450 | ||||||||
4/12/2022 | BEP Ulterra Holdings Inc. | U.S. | Oil & Gas | B- | CCC+ | $415 | ||||||||
3/14/2022 | Salem Media Group Inc. | U.S. | Media & Entertainment | B- | CCC+ | $370 | ||||||||
9/9/2022 | New TMW LLC | U.S. | Consumer Products | B- | CCC+ | $365 | ||||||||
2/23/2022 | Screenvision, LLC | U.S. | Media & Entertainment | B- | CCC+ | $350 | ||||||||
5/6/2022 | Shape Technologies Group Inc., | U.S. | Capital Goods | B- | CCC+ | $350 | ||||||||
6/14/2022 | KC Culinarte Holdings LP | U.S. | Consumer Products | B- | CCC+ | $313 | ||||||||
1/13/2022 | JW Aluminum Continuous Cast Co. | U.S. | Metals, Mining & Steel | B- | CCC+ | $300 | ||||||||
8/12/2022 | Miller's Ale House Inc., | U.S. | Retail/Restaurants | B- | CCC+ | $291 | ||||||||
9/1/2022 | Calceus Acquisition Inc., | U.S. | Consumer Products | B- | CCC+ | $290 | ||||||||
4/21/2022 | RCP Vega Inc., | U.S. | High Technology | B- | CCC+ | $260 | ||||||||
2/8/2022 | Crew Energy Inc. | Canada | Oil & Gas | B- | CCC+ | $235 | ||||||||
Source: S&P Global Ratings. Data as of Sept. 30, 2022. |
Related Research
- Credit Trends: U.S. Corporate Bond Yields As Of Sept. 28, 2022, Sept. 30, 2022
- Credit Conditions North America Q4 2022: Credit Strains Tighten, Sept. 27, 2022
- Economic Outlook Canada Q4 2022: Canadian Growth To Slow On Higher Interest Rates And U.S. Weakness, Sept. 26, 2022
- Economic Outlook U.S. Q4 2022: Teeter Totter, Sept. 26, 2022
- U.S. Economic Downside Impact--Inflation Drives Risks, Sept. 22, 2022
- Credit Trends: Regional Refinancing: Rising Interest Rates And Strengthening Dollar Present Headwinds, Sept. 9, 2022
- Default, Transition, and Recovery: The U.S. Speculative-Grade Corporate Default Rate Could Reach 3.5% By June 2023, Aug. 19, 2022
- CLO Insights 2022 U.S. BSL Index: Trick Or Treat? BSL CLO Credit Metrics Aren’t Scary Yet, But They’re Starting To Tremble, Oct. 11, 2022.
This report does not constitute a rating action.
Credit Markets Research: | Nicole Serino, New York + 1 (212) 438 1396; nicole.serino@spglobal.com |
Patrick Drury Byrne, Dublin (00353) 1 568 0605; patrick.drurybyrne@spglobal.com | |
Leveraged Finance: | Ramki Muthukrishnan, New York + 1 (212) 438 1384; ramki.muthukrishnan@spglobal.com |
Minesh Patel, CFA, New York + 1 (212) 438 6410; minesh.patel@spglobal.com | |
Secondary Contact: | Daniel Hu, FRM, New York + 1 (212) 438 2206; daniel.hu@spglobal.com |
Research Contributor: | Yogesh Kumar, CRISIL Global Analytical Center, an S&P affiliate, Mumbai |
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