(Editor's Note: This report is S&P Global Ratings' monthly summary update of U.S. BSL CLO Index's credit metrics and notable credit themes.)
There have been a handful of downgrades across widely held collateralized loan obligation (CLO) obligors so far this quarter, and they've had an impact on U.S. broadly syndicated loan (BSL) CLO metrics, especially 'CCC' buckets. Much of the activity seems to come from the media sector, with issuer CSC Holdings downgraded in mid-May (see table 3), following earlier rating actions on Altice Europe and Altice USA. All of this nudged the average 'CCC' bucket to 7.58% by late May. As usual, there's a vintage effect, with the average 'CCC' bucket for pre-pandemic CLOs sitting at 7.95%, versus an average of 7.45% for post-pandemic transactions. Junior overcollateralization (O/C) test cushions remain healthy at about 4% on average, but additional CLO obligor downgrades into the 'CCC' range could chip away at this in the near future, particularly for the pre-pandemic transactions. These have, on average, already exceeded the 7.5% 'CCC' threshold even before the Altice downgrades, and have an average junior O/C test cushion of 3.24% compared to the cushion of 4.34% across the post-pandemic CLOs.
Table 1
| CLO BSL Index metrics (CLO Insights 2023-2024 U.S. BSL Index) | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| As of date | 'B-' (%) | 'CCC' category (%) | Nonperforming assets (%) | SPWARF | WARR (%) | Watch negative (%) | Negative outlook (%) | Weighted avg. price of portfolio ($) | Jr. O/C cushion (%) | % of target par | 'B-' on negative outlook (%) | |||||||||||||
| 5/31/2023(i) | 30.06 | 6.02 | 0.58 | 2773 | 59.60 | 0.50 | 16.29 | 93.50 | 4.81 | 100.22 | 4.66 | |||||||||||||
| 6/30/2023(i) | 29.22 | 6.60 | 0.55 | 2766 | 59.64 | 0.46 | 16.22 | 94.99 | 4.68 | 100.17 | 4.80 | |||||||||||||
| 7/31/2023(i) | 28.60 | 6.43 | 0.61 | 2755 | 59.54 | 0.32 | 16.86 | 95.48 | 4.59 | 100.13 | 5.38 | |||||||||||||
| 8/31/2023(i) | 28.45 | 6.82 | 0.52 | 2754 | 59.57 | 0.33 | 17.42 | 95.87 | 4.54 | 100.10 | 5.77 | |||||||||||||
| 9/30/2023(i) | 28.66 | 6.87 | 0.48 | 2752 | 59.41 | 0.63 | 17.59 | 96.00 | 4.54 | 100.08 | 6.34 | |||||||||||||
| 10/31/2023(i) | 27.21 | 7.72 | 0.53 | 2767 | 59.46 | 0.95 | 17.97 | 95.21 | 4.49 | 100.04 | 5.82 | |||||||||||||
| 11/30/2023(i) | 26.78 | 7.40 | 0.42 | 2740 | 59.33 | 1.02 | 18.33 | 95.82 | 4.40 | 99.97 | 5.97 | |||||||||||||
| 12/31/2023(i) | 26.34 | 7.32 | 0.53 | 2729 | 59.67 | 0.95 | 18.11 | 96.74 | 4.36 | 99.94 | 5.67 | |||||||||||||
| 1/31/2024(i) | 26.20 | 6.66 | 0.96 | 2734 | 59.51 | 0.35 | 18.20 | 96.69 | 4.28 | 99.85 | 5.13 | |||||||||||||
| 2/29/2024(i) | 26.54 | 6.23 | 1.06 | 2734 | 59.51 | 0.52 | 16.82 | 97.19 | 4.15 | 99.77 | 5.20 | |||||||||||||
| 3/31/2024(i) | 26.27 | 7.06 | 0.82 | 2733 | 59.23 | 0.66 | 16.33 | 97.36 | 4.11 | 99.72 | 5.09 | |||||||||||||
| 4/30/2024(ii) | 25.87 | 6.86 | 1.08 | 2748 | 58.48 | 0.94 | 16.20 | 97.02 | 4.05 | 99.67 | 4.90 | |||||||||||||
| 5/21/2024(iii) | 25.75 | 7.58 | 0.71 | 2737 | 57.91 | 0.91 | 16.23 | 97.14 | 4.05 | 99.67 | 4.96 | |||||||||||||
| (i)Index metrics based on end-of-month ratings and pricing data and as of month portfolio data available. (ii)Index metrics based on April 30, 2024, ratings and pricing data and latest portfolio data available to us. (iii)index metrics based on May 21, 2024, ratings and pricing data and latest portfolio data available to us. BSL CLO--Broadly syndicated loan collateralized loan obligation. SPWARF--S&P Global Ratings' weighted average rating factor. WARR--Weighted average recovery rate. O/C--Overcollateralization. | ||||||||||||||||||||||||
Table 2
| Notable downgrades across top 500 U.S. BSL CLO obligors | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Rating | ||||||||||||
| Action date | Issuer name | GIC | To | From | Rank within U.S. BSL CLOs | |||||||
| 4/3/2024 | Rackspace Technology Global Inc. | IT services | SD | CCC-/Negative | Top 250 | |||||||
| 4/4/2024 | Accelerated Health Systems LLC | Health care providers and services | CCC+/Stable | B-/Negative | 251 to 500 | |||||||
| 4/18/2024 | Global Medical Response Inc. | Health care providers and services | CC/Negative | CCC+/Negative | Top 250 | |||||||
| 4/24/2024 | EyeCare Partners LLC | Health care providers and services | SD/-- | CCC/Negative | 251-500 | |||||||
| 5/10/2024 | Forest City Enterprises L.P. | Real estate management and development | CCC+/Negative | B-/Negative | Top 250 | |||||||
| 5/15/2024 | CSC Holdings LLC | Media | CCC+/Negative | B-/Watch Neg | Top 250 | |||||||
| GIC--Global industry classification. BSL CLO--Broadly syndicated loan collateralized loan obligation. D--Default. SD--Selective default. NM--Not meaningful. | ||||||||||||
BSL CLOs Have Reduced Exposures To Defaulted Obligors
We reviewed median U.S. BSL CLO exposure to about 100 obligors that have experiend issuer ratings lowered into a nonperforming rating category ('CC', 'SD', or 'D') between January 2020 and March 2023. In chart 1, we show the median exposure across rated U.S. CLO transactions to these issuers, relative to their exposure amounts one year before the default. We find the median exposures gradually declined from 100% (balance one year before default) to about 90% (balance at the time of default), before the median values decline more sharply in the months after default. Generally, the reduction in these exposures likely led to some par loss for the transactions that reduced exposure.
For example, in the "% of target par" column in table 1 above, the average par balance of reinvesting transactions within our CLO index had declined by 55 basis points (bps) over the past one-year period (declined to 99.67% from 100.22%).
Chart 1
In chart 1 above, in addition to BSL CLOs, we also included median middle-market (MM) CLO exposure to loans from about 200 nonperforming obligors assigned a credit estimate of 'cc', 'sd', or 'd' between January 2020 and March 2023. We find that the majority of selective defaults across credit-estimated issuers are due to amendments and interest deferals (see slide 16 in "Private Credit And Middle-Market CLO Quarterly: Not A Sunset, Just An Eclipse ()," published April 24, 2024). The median exposure across MM CLOs to these credit-estimated issuers (relative to their exposure amounts one year before the default) stayed relatively flat before and immediately after the default. This indicates most MM CLOs were less likely than BSL CLOs to reduce exposure to these issuers, which makes sense as there is not a liquid secondary market for these loans.
In a smaller number of instances (compared to BSL CLOs), some MM CLO managers did reduce exposure--in many cases about nine months after the default. This is likely part of the reason MM CLOs have experienced fairly stable average par balance trends. We note the reinvesting MM CLO Index (see our CLO Insights dashboard on R360 via slide 50 in "U.S. BSL CLO And Leveraged Finance Quarterly: High Capital Costs Limit Broad-Based Improvement," published May 8, 2024) had declined by 12 bps during the same time period, declining to 100.66% from 100.78%.
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 | |
| Secondary Contact: | Deegant R Pandya, New York + 1 (212) 438 1289; deegant.pandya@spglobal.com |
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