articles Ratings /ratings/en/research/articles/241205-clo-insights-u-s-bsl-index-clo-metrics-mostly-hold-steady-upgrades-outpace-downgrades-across-clo-obligors-ra-13349473.xml content esgSubNav
In This List
COMMENTS

CLO Insights U.S. BSL Index: CLO Metrics Mostly Hold Steady; Upgrades Outpace Downgrades Across CLO Obligors Rated 'B' And Higher

Covered Bonds Uncovered

COMMENTS

2025 U.S. Residential Mortgage And Housing Outlook

COMMENTS

Weekly European CLO Update

COMMENTS

Scenario Analysis: Middle-Market CLO Ratings Withstand Stress Scenarios With Modest Downgrades (2024 Update)


CLO Insights U.S. BSL Index: CLO Metrics Mostly Hold Steady; Upgrades Outpace Downgrades Across CLO Obligors Rated 'B' And Higher

(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.)

image

Amidst an improving backdrop for leveraged loan issuers, speculative-grade rating actions have been trending more positively, and metrics across reinvesting U.S. collateralized loan obligations (CLOs) have mostly stabilized over the past year. Both 'B-' and 'CCC' category exposures have gradually declined from their highs, while defaults have remained modest and range bound (see table 1). Over the past year, the average exposure to issuers with a negative rating outlook has declined to 13% from 18%, a two-year low and a good sign of decreasing stress. The proportion of broadly syndicated loan (BSL) CLO obligor ratings on with a negative outlook hasn't been this low since the start of fourth-quarter 2022.

The average BSL CLO junior overcollateralization (O/C) test cushion has gradually declined over the past year, but has stabilized over the past two months. Declines over the past year have largely been due to a reduction in the average par balance of portfolios (as a percentage of the transaction's target par balance), which has also stabilized somewhat in recent months.

Conditions for most companies backing BSL CLOs have been getting better. Improving credit metrics, anticipated interest rate cuts and expectations for a soft landing have given the loan market confidence, and we expect the 12-month trailing loan default rate (excluding Selective Defaults) to drop to 1% by the end of September 2025 (see "The U.S. Leveraged Loan Default Rate Is Set To Fall To 1% By September 2025," published Nov. 12, 2024), while the U.S. speculative-grade default rate (including Selective Defaults) should drop to 3.25% over the same period (see "U.S. Speculative-Grade Corporate Default Rate To Fall Further To 3.25% By September 2025," published Nov. 15, 2024). However, liability management transactions (LMTs) and a long-term trend of declining loan recoveries are concerns.

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 (%)
Sept. 30, 2023(i) 26.91 7.23 0.38 2733 59.42 1.01 18.20 95.89 4.52 100.01 5.94
Dec. 31, 2023(i) 26.47 7.15 0.48 2721 59.75 0.95 17.91 96.81 4.49 99.97 5.63
Jan. 31, 2024(i) 26.33 6.50 0.91 2726 59.60 0.36 18.00 96.75 4.40 99.89 5.11
Feb. 29, 2024(i) 26.64 6.09 1.00 2726 59.58 0.54 16.67 97.24 4.27 99.82 5.18
March 31, 2024(i) 26.41 6.92 0.76 2726 59.30 0.66 16.21 97.42 4.23 99.77 5.09
April 30, 2024(i) 25.95 6.53 0.99 2734 59.02 0.92 16.01 97.08 4.14 99.70 4.85
May 31, 2024(i) 25.64 6.74 0.49 2698 59.32 0.94 15.70 97.21 4.02 99.61 4.95
June 30, 2024(i) 25.52 6.43 0.41 2680 59.12 1.13 15.13 96.94 4.06 99.56 4.60
July 31, 2024(i) 25.41 6.52 0.32 2669 59.08 0.94 15.23 97.02 4.07 99.50 4.40
Aug. 30, 2024(i) 25.39 6.47 0.57 2686 58.75 1.11 14.89 97.02 3.99 99.41 3.95
Sept. 30, 2024(i) 25.31 6.45 0.58 2686 58.91 1.42 15.08 97.13 3.86 99.33 4.00
Oct. 31, 2024(ii) 24.97 6.38 0.54 2676 58.88 1.29 14.33 97.30 3.90 99.29 3.63
Nov. 20, 2024(iii) 25.39 5.91 0.67 2676 58.19 1.26 13.44 97.37 3.89 99.28 3.65
(i)Index metrics based on end-of-month ratings and pricing data and as-of month portfolio data available. (ii)Iindex metrics based on Oct. 31, 2024, ratings and pricing data and latest portfolio data available to us. (iii)Index metrics based on Nov. 20, 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
Sept. 17, 2024 CMG Media Corp. Media CC/Negative CCC+/Negative top250
Oct. 24, 2024 VeriFone Systems Inc. Electronic equipment, instruments, and components CCC+/Negative B-/Negative top250
Nov. 14, 2024 CPM Holdings Inc. Machinery B-/Stable B/Negative 251 to 500
Nov. 18, 2024 iHeartCommunications Inc. Media CC/Negative CCC+/Negative 251-500
Nov. 22, 2024 LaserShip, Inc. Air freight and logistics SD/-- CCC-/Negative 251-500
Nov. 26, 2024 FinThrive Software Intermediate Holdings Inc. Health care technology SD/-- CCC/Negative 251-500
GIC--Global industry classification. BSL CLO--Broadly syndicated loan collateralized loan obligation.

Downgrades Still Outnumber Upgrades Across U.S. BSL CLO Obligors So Far In 2024

Downgrades across U.S. BSL CLO obligors continue to outpace upgrades, although at a lower pace. Table 2 above has a list of notable negative actions across widely held CLO obligors (for a full list of rating actions across US BSL CLO obligors in 2024, see "U.S. BSL CLO Obligors: Corporate Rating Actions Tracker 2024 (As Of Nov. 22)," published Nov. 26, 2024). Through Nov. 27, 2024, there have been 270 downgrades this year, compared to 210 upgrades (comparing favorably with last year, which saw 386 downgrades and 229 upgrades across U.S. BSL CLO obligors through November) (see chart 1).

Chart 1

image

Upgrades Outnumber Downgrades Across U.S. BSL CLO Obligors Rated 'B' And Higher

It's notable that with the decrease in BSL CLO exposure to 'B-' and lower-rated obligors (see table 1 above), the proportion of issuers rated 'B' and above has increased by more than 2.5% over the past year, increasing to 68.04% from 65.47%.

Most of the downgrades shown in chart 1 above are concentrated in the issuers rated 'B-' and below. When we focus on U.S. BSL CLO obligors rated 'B' and above, we see there have been more upgrades than downgrades per month since August this year. So far in 2024, upgrades (through Nov. 27) outnumber downgrades 106 to 93. Interestingly, the count of downgrades across issuers rated 'B' and above (93 – from chart 2 below) make up about one-third of the total count of downgrades this year (270 – from chart 1 above), while the exposure to 'B' and higher-rated obligors in CLO portfolios is just over two-thirds now. This makes sense as CLOs have been decreasing their exposure to weaker credits that have experienced negative actions, resulting in a gradual improvement in the average S&P Global Ratings' weighted average rating factor (SPWARF) of our index, which has declined to 2676 from 2733 a year ago.

Chart 2

image

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

No content (including ratings, credit-related analyses and data, valuations, model, software, or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced, or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees, or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness, or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment, and experience of the user, its management, employees, advisors, and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.

To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.

S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.

S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.spglobal.com/ratings (free of charge), and www.ratingsdirect.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.spglobal.com/usratingsfees.

 

Create a free account to unlock the article.

Gain access to exclusive research, events and more.

Already have an account?    Sign in