(Editor's Note: Our "Risky Credits" series focuses on U.S. and Canadian corporate issuers rated 'CCC+' and lower. Because many defaults are of companies in those categories, ratings with negative outlooks or on CreditWatch negative are even more important to monitor.)
Key Takeaways
- The number of 'CCC+' and below rated corporate issuers decreased to 155 in September 2024 from 161 in June 2024--decreasing for the third consecutive quarter and below its five-year average of 175.
- For the first time this year, removals from the risky credits list were primarily due to upgrades from ' CCC+' and lower, rather than defaults
- Despite the decrease in issuer count, 'CCC+' and below debt volumes remain well above their five-year average, largely because the number of risky credits within the telecommunications and health care sectors has grown.
- The consumer products and media and entertainment sectors still lead the risky credits tally by issuer count, despite the high number of defaults in 2024 so far.
Key Highlights
Overall, the risk of default in North America is decreasing as the number of risky credits fall for the third consecutive quarter. The number of North American issuers rated 'CCC+' and below declined to 155 as of September 2024--20 below its five-year average. For the first time this year, removals from the risky credits list were primarily due to upgrades from ' CCC+' and lower, rather than defaults, which is a positive indicator. Additionally, the count of 'B-' rated issuers on CreditWatch negative or outlook has decreased by 15 during the same period. This suggests that the risk of downgrades to 'CCC+' and below is diminishing.
Despite the decrease in issuer count, 'CCC+' and below debt levels remain elevated at $337 billion, 25% above its five-year average of around $250 billion. The high levels of debt are primarily driven by U.S. telecommunications and health care companies, together accounting for more than half of the regions' total ' CCC+' and below rated debt. Additionally, 94% of the debt within these sectors have a negative outlook or are on CreditWatch negative, making these issuers at an even higher risk for default.
Chart 1
Chart 2
Chart 3
Despite leading the North American 2024 default tally through September, the consumer products and media and entertainment sectors continue to lead with the largest number of issuers rated ' CCC+' and below, with 32 and 26, respectively. Even as the number of risky credits fell from September 2023 across most sectors, five sectors (including consumer products, metals, mining and steel, high technology, and transportation) had increases in the number of issuers rated ' CCC+' and below, led by consumer products with three issuers. The operating environment for this sector is challenging as it continues to be the most exposed to strained discretionary spending and still elevated interest rates. Meanwhile, the media and entertainment and health care sectors had the largest decreases in the number of risky credits, falling by nine and five, respectively, since last September, largely driven by high numbers of defaults rather than improved credit.
Chart 4
Chart 5
Reported Debt to EBITDA for 'CCC+' and below was mixed across sectors. Overall debt to EBITDA fell to 10.8x from 12.5x from the previous quarter, with around half of the sectors having a decrease in their weighted averaged adjusted debt to EBITDA ratios. Meanwhile, other sectors like telecommunications and business and consumer services had increases in their debt to EBITDA weighted averages due to both weaker operating performance and a still high interest rate environment. Issuers continue to focus on liquidity for the remainder of 2024.
Chart 6
Collateralized loan obligations (CLO) metrics continue to improve. Haircuts from default exposures (exposures that don't qualify as current pay) have declined notably since earlier in the year and have held steady since July, despite the downgrade of widely held Lumen/Level 3 in early September. Across September and early October trustee reports, Lumen Technologies/Level 3 and Tosca Services exposure made up a large majority of current pay buckets across CLO portfolios (because Lumen/Level 3 exposures across several transactions were counted as current pay, many transactions did not have a default haircut for those exposures across their OC ratios). Meanwhile, haircuts from excess 'CCC' exposures have declined in August and September, resulting in a decline in overall overcollateralized (OC) haircuts. Despite the decline in haircuts to the OC numerator, OC cushions across our index of reinvesting transactions have declined by 0.74% on average (down to 3.84% from 4.58% a year ago), mostly driven by par loss across the portfolios of 0.71% during the same time (as a percentage of target par balances).
Table 1
Collateralized loan obligation BSL index metrics (CLO insights 2022 U.S. BSL index) | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
As of date | 'B-' (%) | CCC' bucket | Non-perform bucket | CreditWatch neg | Outlook neg | |||||||
10/31/2023* | 27.29 | 7.59 | 0.50 | 0.95 | 17.78 | |||||||
11/30/2023* | 26.84 | 7.27 | 0.4 | 1.02 | 18.19 | |||||||
12/31/2023* | 26.39 | 7.17 | 0.50 | 0.95 | 17.94 | |||||||
1/31/2024* | 26.24 | 6.53 | 0.92 | 0.36 | 18.01 | |||||||
2/29/2024* | 26.57 | 6.11 | 1.02 | 0.53 | 16.69 | |||||||
3/31/2024* | 26.34 | 6.93 | 0.77 | 0.66 | 16.23 | |||||||
4/30/2024* | 25.88 | 6.55 | 1.01 | 0.93 | 16.05 | |||||||
5/31/2024* | 25.60 | 6.74 | 0.52 | 0.95 | 15.73 | |||||||
6/30/2024* | 25.47 | 6.44 | 0.42 | 1.16 | 15.16 | |||||||
7/31/2024* | 25.36 | 6.52 | 0.34 | 0.98 | 15.25 | |||||||
8/30/2024* | 25.33 | 6.48 | 0.59 | 1.14 | 14.91 | |||||||
9/30/2024** | 25.23 | 6.54 | 0.62 | 1.46 | 15.12 | |||||||
10/22/2024*** | 25.14 | 6.65 | 0.65 | 1.40 | 14.73 | |||||||
*index metrics based on end of month ratings and pricing data and as of month portfolio data available. **index metrics based on Sept. 30, 2024 ratings and pricing data and latest portfolio data available to us. ***index metrics based on Oct. 22, 2024 ratings and pricing data and latest portfolio data available to us. |
Table 2
Downgrades into 'CCC' category beginning 2024 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Rating date | Issuer | Country | Sector | Rating to | Rating from | |||||||
5/15/2024 | Altice USA, Inc. | U.S. | Telecommunications | CCC+ | B- | |||||||
3/1/2024 | iHeartMedia Inc. | U.S. | Media and entertainment | CCC+ | B | |||||||
5/10/2024 | Connect Holding II LLC | U.S. | Telecommunications | CCC | B- | |||||||
8/16/2024 | Gainwell Holding Corp. | U.S. | Health care | CCC+ | B- | |||||||
8/22/2024 | GrafTech International Ltd. | U.S. | Metals, mining and steel | CCC+ | B- | |||||||
7/18/2024 | CMG Media Corporation (CMG Holdings, Inc.) | U.S. | Media and entertainment | CCC+ | B- | |||||||
1/12/2024 | GoTo Group, Inc. | U.S. | High technology | CCC+ | B- | |||||||
5/20/2024 | Calumet Specialty Products Partners LP | U.S. | Utility | CCC+ | B- | |||||||
9/20/2024 | Naked Juice LLC | U.S. | Consumer products | CCC+ | B- | |||||||
8/9/2024 | EmployBridge Holding Co | U.S. | Media and entertainment | CCC+ | B- | |||||||
7/23/2024 | Corus Entertainment Inc. | Canada | Media and entertainment | CCC | B- | |||||||
8/19/2024 | Redstone Buyer LLC | U.S. | High technology | CCC+ | B- | |||||||
4/4/2024 | Athletico Holdings, LLC | U.S. | Health care | CCC+ | B- | |||||||
4/12/2024 | Pathway Vet Alliance LLC | U.S. | Health care | CCC+ | B- | |||||||
5/24/2024 | LD Holdings Group LLC | U.S. | Financial institutions | CCC+ | B- | |||||||
7/18/2024 | Allen Media, LLC | U.S. | Media and entertainment | CCC+ | B- | |||||||
1/4/2024 | Hughes Satellite Systems Corporation (EchoStar Corporation) | U.S. | Telecommunications | CCC+ | BB | |||||||
3/11/2024 | WW International, Inc. | U.S. | Consumer products | CCC+ | B- | |||||||
7/24/2024 | Franchise Group Inc. | U.S. | Retail/Restaurants | CCC+ | B- | |||||||
5/10/2024 | Forest City Realty Trust Inc. (Brookfield Corporation) | U.S. | Homebuilders/Real Estate Co. | CCC+ | B- | |||||||
1/16/2024 | Baffinland Iron Mines Corp. | Canada | Metals, mining and steel | CCC | B- | |||||||
2/27/2024 | Cumulus Media Inc. | U.S. | Media and entertainment | CC | B- | |||||||
6/13/2024 | Upstream Newco, Inc. | U.S. | Health care | CCC+ | B | |||||||
6/5/2024 | American Tire Distributors Inc. | U.S. | Automotive | CCC+ | B- | |||||||
8/28/2024 | Optiv, Inc. | U.S. | High technology | CCC+ | B- | |||||||
2/6/2024 | Pluto Acquisition I, Inc. | U.S. | Health care | CC | B- | |||||||
6/17/2024 | PAI Holdco, Inc. | U.S. | Retail/Restaurants | CCC+ | B- | |||||||
6/28/2024 | EagleView Technology Corp. | U.S. | Media and entertainment | CCC | B- | |||||||
5/29/2024 | Cobra Holdings, Inc. (Confluence Technologies, Inc.) | U.S. | Consumer products | CCC+ | B- | |||||||
5/2/2024 | Del Monte Foods, Inc. | U.S. | Consumer products | CCC+ | B- | |||||||
3/15/2024 | American Rock Salt Company LLC | U.S. | Metals, mining and steel | CCC+ | B- | |||||||
4/30/2024 | Dodge Construction Network LLC | U.S. | Consumer products | CCC+ | B- | |||||||
5/2/2024 | SIRVA Inc. | U.S. | Consumer products | CCC | B- | |||||||
3/26/2024 | Sandvine LP | Canada | High technology | CCC | B- | |||||||
7/22/2024 | Congruex Group LLC | U.S. | Capital goods | CCC | B- | |||||||
3/12/2024 | Emergent BioSolutions Inc. | U.S. | Health care | CCC+ | B- | |||||||
9/27/2024 | Thrive Merger Sub, LLC | U.S. | Health care | CCC+ | B- | |||||||
5/10/2024 | TJC Spartech Acquisition Corp. (Spartech Parent Corp.) | U.S. | Capital goods | CCC+ | B- | |||||||
8/29/2024 | Berry Corporation | U.S. | Oil and gas exploration and production | CCC+ | B- | |||||||
5/24/2024 | Lereta, LLC | U.S. | Media and entertainment | CCC+ | B- | |||||||
6/13/2024 | Vertex Energy, Inc. | U.S. | Utility | CCC | B- | |||||||
8/23/2024 | TMK Hawk Parent, Corp. | U.S. | Consumer products | CCC | B- | |||||||
7/3/2024 | Container Store Group, Inc. (The) | U.S. | Retail/Restaurants | CCC+ | B- | |||||||
6/21/2024 | Aegis Toxicology Sciences Corporation (Aegis Acquistion, Inc.) | U.S. | Health care | CCC+ | B- | |||||||
Data as of Sept. 30, 2024. Source: S&P Global Credit Research & Insights. |
Table 3
Upgrades from 'CCC' category beginning 2024 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Rating date | Issuer | Country | Sector | Rating to | Rating from | |||||||
8/14/2024 | Carvana Co. | U.S. | Automotive | B- | CCC+ | |||||||
1/26/2024 | Artera Services, LLC | U.S. | Capital goods | B- | CCC+ | |||||||
4/12/2024 | Michaels Companies, Inc. (The) | U.S. | Retail/Restaurants | B- | CCC+ | |||||||
3/21/2024 | Vericast Corp. | U.S. | Media and entertainment | B- | CCC | |||||||
8/15/2024 | Team Health Holdings, Inc. | U.S. | Health care | B- | CCC | |||||||
4/11/2024 | Five Point Holdings, LLC | U.S. | Homebuilders/Real Estate Co. | B- | CCC+ | |||||||
9/26/2024 | Glatfelter Corp. | U.S. | Forest products and building materials | B+ | CCC+ | |||||||
6/4/2024 | Bulldog Purchaser Inc. | U.S. | Media and entertainment | B- | CCC+ | |||||||
6/6/2024 | Triumph Group Inc. | U.S. | Aerospace and defense | B- | CCC+ | |||||||
7/31/2024 | Syniverse Corporation | U.S. | Telecommunications | B- | CCC+ | |||||||
5/7/2024 | Aptim Corp. | U.S. | Capital goods | B- | CCC+ | |||||||
7/23/2024 | Kronos Worldwide Inc. | U.S. | Chemicals, packaging and environmental services | B- | CCC+ | |||||||
4/22/2024 | Hubbard Radio, LLC | U.S. | Media and entertainment | B- | CCC+ | |||||||
6/7/2024 | IXS Holdings, Inc. | U.S. | Automotive | B- | CCC+ | |||||||
7/30/2024 | MicroStrategy Inc. | U.S. | High technology | B- | CCC+ | |||||||
3/14/2024 | Patchell Holdings Inc. | Canada | Media and entertainment | B- | CCC+ | |||||||
9/11/2024 | Emergent BioSolutions Inc. | U.S. | Health care | B- | CCC | |||||||
4/19/2024 | IAMGOLD Corporation | Canada | Metals, mining and steel | B- | CCC+ | |||||||
3/5/2024 | KAMC Holdings, Inc. | U.S. | Consumer products | B- | CCC+ | |||||||
8/20/2024 | Power Stop LLC | U.S. | Automotive | B- | CCC+ | |||||||
8/29/2024 | Great Lakes Dredge & Dock Corp. | U.S. | Capital goods | B- | CCC+ | |||||||
4/8/2024 | LendingTree, Inc. | U.S. | Media and entertainment | B- | CCC+ | |||||||
Data as of Sept. 30, 2024. Source: S&P Global Credit Research & Insights. |
Related Research
- Distressed Exchanges Underpin Rise In North American Selective Defaults, Oct. 28, 2024
- Credit Trends: Floating-Rate Debt Is Still A Cause For Concern Despite Rate Reductions, Oct. 17, 2024
- The Pace Of Global Corporate Defaults Slows, Oct. 16, 2024
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 |
Secondary Contact: | Daniel Hu, FRM, New York + 1 (212) 438 2206; daniel.hu@spglobal.com |
Research Contributor: | Suresh N Kasa, Mumbai; suresh.kasa@spglobal.com |
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