(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.)
Credit conditions may still be relatively benign, but since the start of 2025, there has been a flurry of downgrades across obligors in U.S. broadly syndicated loan (BSL) collateralized loan obligation (CLO) transactions (see "U.S. BSL CLO Obligors: Corporate Rating Actions Tracker 2025 (As Of Feb. 14)," published Feb. 20, 2025). A handful of widely held U.S. BSL CLO obligors have been recently downgraded into the 'CCC' category (see table 2), resulting in an uptick in average 'CCC' buckets across the CLO index to 6.2% (data as of Feb. 24, 2025). Among the widely held obligor downgrades was Altice, which saw its rating lowered to 'CC/Negative' from 'CCC/Developing' after a liability management transaction (see "Altice France Holding And Altice France Downgraded To 'CC' On Proposed Debt Restructuring; Outlook Negative," published Feb. 28, 2025 (the impact of this action is not captured in the index table below).
These negative corporate rating actions could result in additional haircuts to CLO overcollateralization (O/C) ratios in the near future. Currently, the average junior O/C cushion across the CLO index is still healthy, at 3.87%, down from 4.36% a year ago (with the decline primarily due to par loss). As a silver lining, exposure to 'B-' rated obligors with a negative rating outlook has declined to 3.03% as several have been downgraded this year.
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 (%) | |||||||||||||
Feb. 29, 2024(i) | 26.46 | 5.91 | 0.93 | 2713 | 59.68 | 0.54 | 16.48 | 97.30 | 4.36 | 99.85 | 5.16 | |||||||||||||
March 31, 2024(i) | 26.21 | 6.73 | 0.70 | 2714 | 59.39 | 0.67 | 16.09 | 97.47 | 4.32 | 99.81 | 5.06 | |||||||||||||
April 30, 2024(i) | 25.74 | 6.37 | 0.95 | 2723 | 59.11 | 0.92 | 15.90 | 97.12 | 4.22 | 99.74 | 4.82 | |||||||||||||
May 31, 2024(i) | 25.40 | 6.62 | 0.45 | 2688 | 59.43 | 0.93 | 15.62 | 97.23 | 4.10 | 99.65 | 4.91 | |||||||||||||
June 30, 2024(i) | 25.29 | 6.31 | 0.37 | 2670 | 59.25 | 1.12 | 15.04 | 96.97 | 4.15 | 99.61 | 4.55 | |||||||||||||
July 31, 2024(i) | 25.20 | 6.40 | 0.29 | 2660 | 59.17 | 0.92 | 15.11 | 97.05 | 4.15 | 99.56 | 4.34 | |||||||||||||
Aug. 30, 2024(i) | 25.16 | 6.35 | 0.54 | 2675 | 58.82 | 1.08 | 14.82 | 97.05 | 4.08 | 99.48 | 3.88 | |||||||||||||
Sept. 30, 2024(i) | 25.04 | 6.33 | 0.56 | 2676 | 58.97 | 1.42 | 15.03 | 97.14 | 3.95 | 99.40 | 3.94 | |||||||||||||
Oct. 31, 2024(i) | 24.71 | 6.19 | 0.51 | 2662 | 59.00 | 1.28 | 14.28 | 97.29 | 3.99 | 99.36 | 3.57 | |||||||||||||
Nov. 30, 2024(i) | 25.35 | 5.35 | 0.67 | 2662 | 58.71 | 1.17 | 13.41 | 97.56 | 3.93 | 99.30 | 3.67 | |||||||||||||
Dec. 31, 2024(i) | 25.58 | 5.47 | 0.49 | 2652 | 58.59 | 1.28 | 13.43 | 97.44 | 3.89 | 99.25 | 3.80 | |||||||||||||
Jan. 31, 2025(ii) | 25.51 | 5.66 | 0.46 | 2653 | 58.08 | 0.70 | 13.35 | 97.55 | 3.87 | 99.23 | 3.67 | |||||||||||||
Feb. 24, 2025(iii) | 25.03 | 6.20 | 0.46 | 2663 | 57.48 | 0.75 | 12.99 | 96.99 | 3.87 | 99.23 | 3.03 | |||||||||||||
(i)Index metrics based on end of month ratings and pricing data and as of month portfolio data available. (ii)Index metrics based on Jan. 31, 2025, ratings and pricing data and latest portfolio data available to us. (iii)Index metrics based on Feb. 24, 2025, 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 | |||||||
Jan. 31, 2025 | MPH Acquisition Holdings LLC | Health care providers and services | SD | CC/Watch Neg | 251 to 500 | |||||||
Feb. 4, 2025 | Atlas CC Acquisition Corp. | Aerospace and defense | CCC+/Negative | B-/Negative | Top 250 | |||||||
Feb. 13, 2025 | Newfold Digital Holdings Group, Inc. | IT services | CCC+/Watch Neg | B-/Negative | Top 250 | |||||||
Feb. 18, 2025 | Ascend Performance Materials Operations LLC | Chemicals | CCC+/Negative | B/Negative | 251 to 500 | |||||||
Feb. 28, 2025 | Altice France S.A. | Diversified telecommunication services | CC/Negative | CCC/Developing | Top 250 | |||||||
GIC--Global industry classification. BSL CLO--Broadly syndicated loan collateralized loan obligation. |
What Looming Tariffs Could Mean For U.S. CLO Obligors
The prospects of higher tariffs and escalating tensions between the U.S. and its trading partners are concerns for many U.S. corporate borrowers we rate (see "What Looming Tariffs Could Mean For U.S. Corporates," published Feb. 27, 2025). In fact, higher tariffs are the most frequently cited negative risk to our corporate sectors' baseline views. In chart 1 below from the article, we provide our assessment on how the announced tariff actions (China, Mexico, Canada, and steel and aluminum) might affect the U.S. nonfinancial corporate sectors we rate.
Chart 1
Through the lens of the GICs industry classification framework we use for our CLO analysis, we mapped BSL CLO exposures into the categories in the table above. We find U.S. BSL CLOs have limited exposure to the more affected sectors (auto, metal and mining, as well as oil and gas issuers). The Information Technology (IT) GIC sector has considerable weight in U.S. BSL CLO collateral pools, but this includes software and services industries, which presumably would have less of a direct impact from tariffs. When we focus on the equipment-related industries within the IT sector, we find U.S. BSL CLOs have only about 2% exposure (see table 3 below).
Table 3 below shows the current U.S. BSL CLO GICs industry exposures to categories that are related to the sectors highlighted in chart 1 above. For details on the tariff impact on each of the key U.S. sectors, see "What Looming Tariffs Could Mean For U.S. Corporates."
Table 3
U.S. BSL CLO GICs industry exposures to categories | ||||||
---|---|---|---|---|---|---|
Sector Highlighted | Related GICS industry | U.S. BSL CLO exposure (%) | ||||
Auto | Automobile components | 1.51 | ||||
Auto | Automobiles | 0.22 | ||||
Metals and mining | Metals and mining | 0.66 | ||||
Sum of exposures | 2.39 | |||||
Oil and gas | Energy equipment and services | 0.20 | ||||
Oil and gas | Oil, gas, and consumable Fuels | 1.58 | ||||
Technology | Communications equipment | 0.44 | ||||
Technology | Electronic equipment, instruments, and components | 0.93 | ||||
Technology | Semiconductors and semiconductor equipment | 0.43 | ||||
Technology | Technology hardware, storage, and peripherals | 0.19 | ||||
Sum of exposures | 3.76 | |||||
Capital goods | Aerospace and defense | 2.39 | ||||
Capital goods | Building products | 1.53 | ||||
Capital goods | Construction and engineering | 1.48 | ||||
Capital goods | Electrical equipment | 0.72 | ||||
Capital goods | Industrial conglomerates | 0.00 | ||||
Capital goods | Machinery | 4.22 | ||||
Capital goods | Trading companies and distributors | 3.10 | ||||
Chemicals | Chemicals | 3.72 | ||||
Consumer products/retail | Beverages | 0.38 | ||||
Consumer products/retail | Broadline retail | 0.26 | ||||
Consumer products/retail | Consumer staples distribution and retail | 0.21 | ||||
Consumer products/retail | Distributors | 0.37 | ||||
Consumer products/retail | Food products | 1.58 | ||||
Consumer products/retail | Household durables | 0.89 | ||||
Consumer products/retail | Household products | 0.17 | ||||
Consumer products/retail | Leisure products | 0.60 | ||||
Consumer products/retail | Personal care products | 0.18 | ||||
Consumer products/retail | Specialty retail | 3.05 | ||||
Consumer products/retail | Textiles, apparel, and luxury goods | 0.36 | ||||
Consumer products/retail | Tobacco | 0.00 | ||||
Pharmaceuticals/health care | Biotechnology | 0.26 | ||||
Pharmaceuticals/health care | Health care technology | 2.06 | ||||
Pharmaceuticals/health care | Healthcare equipment and supplies | 0.72 | ||||
Pharmaceuticals/health care | Healthcare providers and services | 6.17 | ||||
Pharmaceuticals/health care | Life sciences tools and services | 1.19 | ||||
Pharmaceuticals/health care | Pharmaceuticals | 0.99 | ||||
Utilities/power | Electric utilities | 0.72 | ||||
Utilities/power | Gas utilities | 0.22 | ||||
Utilities/power | Independent power and renewable electricity producers | 0.74 | ||||
Utilities/power | Multi-utilities | 0.04 | ||||
Utilities/power | Project finance: oil and gas | 0.11 | ||||
Utilities/power | Project finance: power | 0.79 | ||||
Utilities/power | Water utilities | 0.08 | ||||
Sum of exposures | 39.30 | |||||
BSL CLO--Broadly syndicated loan collateralized loan obligation. GIC--Global industry classification |
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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