![]() ![]() BSL CLO Ratings in mid-2021 (see "How The Next Downturn Could Affect U.S. Since we published our last scenario analysis on U.S. BSL CLO collateral credit quality has been on an improving trend. BSL CLO credit metrics bottomed out then too, with obligors on CreditWatch negative peaking at 10.7% (April 2020), CLO 'CCC' baskets and exposure to non-performing assets peaking at 12.3% and 1.6% (May 2020), respectively, and the average CLO junior overcollateralization (O/C) ratio cushion shrinking to 1.1% (June 2020).Īfter mid-2020, U.S. CLO collateral pools (by par) had experienced a downgrade. CLO transactions, and by the middle of that year, nearly a third of all corporate ratings in U.S. The arrival of the COVID-19 pandemic and related economic shutdowns back in early 2020 presented significant challenges to speculative-grade companies with loans in U.S. Since Our Last BSL CLO Rating Stress Test Was Published, Average CLO Metrics Have Improved We also added two new stresses we think may shed light on how today's CLO ratings would perform if they were subjected to the CLO collateral stresses seen in the two past recessions: the Global Financial Crisis (GFC) in 2008-2009, and more recently, the pandemic-driven recession early in 2020.įor earlier versions of our published BSL CLO rating stress scenario articles, or for some of the other CLO rating stress scenario articles we've produced, see the Related Research section at the end of this article. For purposes of this current exercise, we re-ran four of the stresses we published in April 2020 and June of 2021, which should allow for performance comparisons across time. Each scenario envisions a proportion of corporate loan issuers experiencing a default, then assumes that a proportion of the remaining (i.e., non-defaulted) obligors see a rating transition (for example, see their issuer rating lowered into the 'CCC' range). broadly syndicated loan (BSL) CLO ratings. Much of the focus of these discussions has been to gauge the potential for how CLO ratings might be affected by another recession.Īs we've done in previous years, we recently generated a series of stress scenarios to test the resiliency of S&P Global Ratings' U.S. Leveraged finance fundamentals (EBITDA margin trends, interest coverage ratios, the loan maturity wall, etc.) have been front and center in most recent conversations we've had with CLO market participants, which reflects where we are-or think we might be headed-in the economic cycle. ![]() collateralized loan obligation (CLO) market has increased markedly in recent quarters, and investors and issuers alike are keeping a wary eye out for an increase in corporate rating downgrades. ![]() As with our previous BSL CLO rating stress scenarios, the current analysis shows the CLO structure protecting senior noteholders, with 93% of our CLO 'AAA' ratings seeing no more than a one-notch downgrade even in our harshest scenario. ![]() We re-ran four of the stresses we published in April 2020 and June of 2021, and added two new stresses to see how today's CLO ratings would perform if subjected to the collateral stresses seen in the Global Financial Crisis in 2008-2009 and the pandemic-driven recession in 2020.BSL CLO ratings for the next possible downturn, we have updated our BSL CLO ratings stress scenarios. CLO market has increased markedly in recent quarters, and investors and issuers alike are keeping a wary eye out for an increase in corporate rating downgrades. ![]()
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