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Credit Trends: Risky Credits: North America's 'CCC+' And Below Rated Debt Reaches $230 Billion

COMMENTS

Credit Trends: U.S. Corporate Bond Yields As Of Jan. 8, 2025

COMMENTS

2023 Short-Term Corporate Default And Rating Transition Study

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Credit Trends: U.S. Corporate Bond Yields As Of Dec. 11, 2024

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Default, Transition, and Recovery: Global Speculative-Grade Corporate Default Rate To Decline To 3.5% By September 2025


Credit Trends: Risky Credits: North America's 'CCC+' And Below Rated Debt Reaches $230 Billion

Editor's note: Our "Risky Credits" series primarily focuses on U.S. and Canadian corporate issuers rated 'CCC+' and lower. Because many defaults are of companies in that category, ratings with negative outlooks or on CreditWatch negative are even more important to monitor.

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'CCC+' and below rated debt increased to a 17-month high in October.

The number of 'CCC+' and lower rated issuers jumped by eight over the last month, amounting to US$97 billion in additional debt. Total debt outstanding has now reached its May 2021 level of $230 billion, but still well below its April 2020 peak of $347 billion (see chart 1). Meanwhile, the number of 'B-'rated issuers with a negative outlook and CreditWatch--a forward-looking indicator of corporate credit quality-- also increased to 60 in October 2022, from 52 in September 2022. Outstanding debt rated 'B-' with a negative outlook increased to $77 billion from $68 billion in the same period. We can expect the number of 'CCC+' and lower issuers to continue to climb.

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Healthcare led additions this month, but the consumer products sector is most exposed to default risk.

The consumer sector leads with the most 'CCC+ and below' rated issuers with 31, of which 90% are on a negative outlook or CreditWatch. This is higher than at this point last year as issuers have seen a pullback in consumer spending because of higher prices and recession fears. The consumer sector already leads the 2022 U.S. default tally with seven through October, but we can expect defaults in this sector to continue rising. We expect the U.S. trailing-12-month speculative-grade corporate default rate to reach 3.7% by Septempber 2023, up from 1.6% in September 2022.

Chart 2

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CLO credits show modest deterioration.

The stable to negative trend in U.S. broadly syndicated loan (BSL) collateralized loan obligation (CLO) collateral credit metrics continued in October, with most metrics remaining unchanged, while two important ones continued to have modest deterioration. The average BSL CLO 'CCC' basket also topped 5% in November, the first time since January 2022. However, the 5.02% average can be misleading because there is a significant vintage effect, with pre-pandemic CLOs having an average 'CCC' exposure of 5.80%, while post-pandemic CLOs averaged just 4.00%. Since some CLOs (mostly pre-pandemic ones) have already exceeded their 7.5% 'CCC' thresholds, we believe their overcollateralization (O/C) ratios may have market value haircuts within upcoming trustee reports.

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%
Nov-22 28.85% 5.02% 0.40% 0.59% 14.46%
BSL CLO--Broadly syndicated loan collateralized loan obligation. SPWARF--S&P Global Ratings' weighted average rating factor. O/C--Overcollateralization.

Table 2

Downgrades into 'CCC' And 'CC' Category Beginning 2022
Rating Date Issuer Country Sector Rating To Rating From Debt Amount (US $ Mil)
8/1/2022 Bausch Health Cos. Inc. Canada Health care CCC+ B $44,402
10/14/2022 Finastra Ltd. Cayman Islands High technology CCC+ B- $34,432
10/28/2022 Team Health Holdings Inc., U.S. Health care CCC+ B- $9,849
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
10/7/2022 Photo Holdings, LLC U.S. Media and entertainment CCC B- $3,290
5/11/2022 Diebold Nixdorf Inc. U.S. High technology CCC+ B- $3,207
3/31/2022 Monitronics International Inc. U.S. Media and 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
10/19/2022 PECF USS Intermediate Holding III Corp. U.S. Chemicals, packaging and environmental services CCC+ B- $2,550
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 and entertainment CCC+ B- $1,780
9/23/2022 Wheel Pros Inc., U.S. Automotive CCC+ B- $1,540
8/22/2022 Bed Bath & Beyond Inc. U.S. Retail/Restaurants CCC B- $1,500
7/29/2022 Weber Inc. U.S. Consumer products 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 and 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
6/17/2022 Canopy Growth Corp. Canada Consumer products CCC B- $750
2/25/2022 8th Avenue Food & Provisions Inc., U.S. Consumer products CCC+ B- $750
10/19/2022 Quincy Health, LLC U.S. Health Care CCC B- $732
7/18/2022 IXS Holdings Inc., U.S. Automotive CCC+ B- $620
9/30/2022 Lucky Bucks, LLC U.S. Media and entertainment CCC B $555
10/20/2022 Victory Buyer, LLC U.S. Capital Goods CCC+ B- $525
8/17/2022 Traeger Inc., U.S. Consumer products CCC+ B $510
10/20/2022 China SCE Group Holdings Ltd. Cayman Islands Homebuilders/real estate co. CCC+ B- $500
10/26/2022 Glatfelter Corp. U.S. Forest products and building materials CCC+ B+ $500
4/27/2022 Phoenix Services International LLC U.S. Metals, mining and 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
10/21/2022 IAMGOLD Corp. Canada Metals, mining and steel CCC+ B- $450
2/11/2022 INW Manufacturing, LLC U.S. Consumer products CCC+ B- $440
1/31/2022 Halo Buyer Inc. 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 and entertainment CCC B- $415
3/22/2022 PlayPower Holdings Inc. U.S. Media and 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 and entertainment CCC+ B- $300
10/21/2022 Casa Systems Inc., U.S. High technology 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 and 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 Credit Research And Insights. Data as of Oct. 31, 2022.

Table 3

Upgrades from 'CCC' And 'CC' Category Beginning 2022
Rating Date Issuer Country Sector Rating To Rating From Debt Amount (US $ Mil)
8/23/2022 Bombardier Inc. Canada Aerospace and defense B- CCC+ $6,360
2/17/2022 Nabors Industries Ltd. Bermuda Oil and gas B- CCC+ $5,101
5/23/2022 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 and building materials B- CCC $2,729
4/5/2022 DTI Holdco Inc., U.S. Media and entertainment B- CCC+ $2,155
4/4/2022 KUEHG Corp. U.S. Media and entertainment B- CCC+ $1,387
8/17/2022 Peabody Energy Corp. U.S. Metals, mining and steel B- CCC+ $1,382
6/23/2022 Fitness International, LLC U.S. Media and entertainment B- CCC+ $1,275
6/10/2022 Spectacle Bidco Holdings Inc. Canada Media and entertainment B- CCC+ $1,232
1/12/2022 National CineMedia Inc. U.S. Media and 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 and gas B- CCC+ $1,000
6/10/2022 Spring Education Group Inc. U.S. Media and 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 and environmental services B- CCC+ $758
4/4/2022 Learning Care Group (US) No. 2 Inc. (Learning Care Group (US) Inc.) U.S. Media and entertainment B- CCC+ $710
5/13/2022 Jazz Acquisition Inc. (Wencor Group LLC) U.S. Aerospace and 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 and environmental services B- CCC+ $450
4/12/2022 BEP Ulterra Holdings Inc. U.S. Oil and gas B- CCC+ $415
3/14/2022 Salem Media Group Inc. U.S. Media and 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 and 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 and 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 and gas B- CCC+ $235
Source: S&P Global Credit Research And Insights. Data as of Oct. 31, 2022.

Related Research

Rating Action

This report does not constitute a rating action.

Credit Research and Insights:Nicole Serino, New York + 1 (212) 438 1396;
nicole.serino@spglobal.com
Patrick Drury Byrne, Dublin (00353) 1 568 0605;
patrick.drurybyrne@spglobal.com
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Minesh Patel, CFA, New York + 1 (212) 438 6410;
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daniel.hu@spglobal.com
Research Contributor:Yogesh Kumar, Pune;
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