(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.)
Over the past year, broadly syndicated loan (BSL) CLO managers have reduced exposure to 'B-' issuers, and a number of widely held 'B-' rated issuers have seen rating changes, with some downgraded into the 'CCC' category and others upgraded to 'B' or higher. After gradually declining 'B-' exposures for several quarters, 'B' rated obligors reclaimed the largest rating cohort by a small margin as of July 2024 (see chart 1). 'B' exposure was the largest cohort across U.S. BSL CLO portfolios for several years until 'B-' took over at the end of 2022.
A few issuers saw their ratings withdrawn in July, which, based on the way the metrics in our index are calculated, contributed to an increase in the July 2024 'CCC' exposure (see table 2 below). SRS Distribution Inc. saw its rating withdrawn after an acquisition and repayment of its debt, and Parfums Holding Co. Inc. had its rating withdrawn by issuer request after a refinancing. Unrated obligors are included within the 'CCC' bucket in table 1. As new trustee reports become available, updated portfolio exposures will be reflected in future updates.
Table 1
U.S. BSL CLO Index metrics | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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 (%) | |||||||||||||
7/31/2023* | 28.76 | 6.38 | 0.58 | 2754 | 59.54 | 0.31 | 16.83 | 95.50 | 4.59 | 100.12 | 5.40 | |||||||||||||
8/31/2023* | 28.60 | 6.77 | 0.51 | 2753 | 59.55 | 0.32 | 17.39 | 95.90 | 4.54 | 100.09 | 5.78 | |||||||||||||
9/30/2023* | 28.79 | 6.82 | 0.47 | 2752 | 59.39 | 0.62 | 17.55 | 96.01 | 4.54 | 100.08 | 6.34 | |||||||||||||
10/31/2023* | 27.34 | 7.69 | 0.52 | 2767 | 59.45 | 0.93 | 17.95 | 95.23 | 4.49 | 100.04 | 5.82 | |||||||||||||
11/30/2023* | 26.90 | 7.37 | 0.41 | 2740 | 59.33 | 1.01 | 18.34 | 95.84 | 4.41 | 99.97 | 5.98 | |||||||||||||
12/31/2023* | 26.46 | 7.29 | 0.52 | 2729 | 59.66 | 0.94 | 18.07 | 96.76 | 4.37 | 99.94 | 5.67 | |||||||||||||
1/31/2024* | 26.31 | 6.64 | 0.94 | 2733 | 59.50 | 0.34 | 18.17 | 96.71 | 4.29 | 99.85 | 5.15 | |||||||||||||
2/29/2024* | 26.64 | 6.21 | 1.04 | 2733 | 59.48 | 0.51 | 16.81 | 97.20 | 4.16 | 99.77 | 5.21 | |||||||||||||
3/31/2024* | 26.38 | 7.05 | 0.78 | 2732 | 59.21 | 0.65 | 16.33 | 97.38 | 4.11 | 99.72 | 5.11 | |||||||||||||
4/30/2024* | 25.95 | 6.63 | 1.04 | 2741 | 58.93 | 0.94 | 16.13 | 97.05 | 4.03 | 99.66 | 4.89 | |||||||||||||
5/31/2024* | 25.70 | 6.81 | 0.52 | 2703 | 59.25 | 0.95 | 15.80 | 97.20 | 3.90 | 99.56 | 5.01 | |||||||||||||
6/30/2024** | 25.48 | 6.68 | 0.42 | 2686 | 58.88 | 1.16 | 15.29 | 96.87 | 3.93 | 99.54 | 4.66 | |||||||||||||
7/22/2024*** | 25.23 | 7.26 | 0.38 | 2695 | 58.29 | 0.95 | 15.58 | 96.80 | 3.93 | 99.54 | 4.54 | |||||||||||||
*index metrics based on end of month ratings and pricing data and as of month portfolio data available. **index metrics based on June 30, 2024, ratings and pricing data and latest portfolio data available to us. ***index metrics based on July 22, 2024, ratings and pricing data and latest portfolio data available to us. |
Table 2
Notable downgrades across top 500 U.S. BSL CLO obligors | |||||
---|---|---|---|---|---|
Rating | |||||
Action date | Issuer name | GIC | To | From | Number rank |
6/13/2024 | Upstream Newco Inc. | Health care providers and services | CCC+/Negative | B/Negative | 251-500 |
6/17/2024 | PAI Holdco Inc. | Distributors | CCC+/Negative | B-/Negative | 251-500 |
7/12/2024 | Medical Solutions Parent Holdings Inc. | Health care providers and services | B-/Stable | B/Stable | 251-500 |
7/18/2024 | CMG Media Corp. | Media | CCC+/Negative | B-/Watch Neg | Top 250 |
Chart 1
New Issue CLOs And Resets Are Not The Same
Table 3
U.S. BSL CLO issuance average metrics at close | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Quarter Closed | New issue | Reset | ||||||||||||||||
'B-' (%) | 'CCC' bucket (%) | Non-perform (%) | SPWARF | 'B-' (%) | 'CCC' bucket (%) | Non-perform (%) | SPWARF | |||||||||||
2023Q1 | 26.26 | 2.36 | 0.01 | 2560 | N/A* | N/A* | N/A* | N/A* | ||||||||||
2023Q2 | 25.46 | 1.96 | 0.02 | 2534 | N/A* | N/A* | N/A* | N/A* | ||||||||||
2023Q3 | 24.19 | 2.11 | 0.02 | 2523 | 24.44% | 5.68 | 0.31 | 2647 | ||||||||||
2023Q4 | 24.36 | 2.22 | 0.04 | 2544 | 24.09% | 5.80 | 0.59 | 2630 | ||||||||||
2024Q1 | 23.82 | 1.61 | 0.02 | 2497 | 25.77% | 5.89 | 0.27 | 2649 | ||||||||||
2024Q2** | 23.47 | 2.45 | 0.02 | 2516 | 23.84% | 5.80 | 0.41 | 2636 | ||||||||||
*Sample size too small. **Some new issue/reset transactions have not issued their first trustee reports yet, based on latest data available to us as of July 1, 2024. SPWARF--S&P Global Ratings' weighted average rating factor. |
Given the increase in CLO new issuance volume and CLO resets for U.S. BSL CLO transactions this year, we decided to compare new issue CLO and reset CLO portfolios for transactions closing over the past few quarters. We find many of the recent resets were from transactions that originally closed in 2020 through 2022. About half of the recently CLO reset transactions are from CLOs originated prior to the arrival of the pandemic in first-quarter 2020. Most of these transaction's portfolios experienced elevated levels of corporate rating downgrades over the past couple of years as interest rates increased sharply.
Some of these CLO resets may have had portfolios cleaned up ahead of the reset, as many of them had less than 6% 'CCC' exposure compared to the average reinvesting U.S. BSL CLO 'CCC' exposure of 6%-7% over the past year (see table 1 above). However, the new issue CLOs still have much cleaner portfolios, averaging around 2% 'CCC' exposure over the past few quarters. Average 'B-' exposures were fairly similar across the new issue and reset transactions that closed in recent quarters.
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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