Since the start of the year, downgrades across U.S. broadly syndicated loan (BSL) collateralized loan obligation (CLO) obligors have outnumbered upgrades, and 'CCC' category and non-performing exposures across reinvesting U.S. BSL CLOs have gradually increased. Portfolio par balances have also gradually declined during this time, leading to a modest decline in junior overcollateralization (O/C) test cushions. Vintage continues to play a role, as the older transactions typically have lower junior O/C test cushions as well as higher 'CCC' buckets. Reinvesting CLO transactions originated prior to the COVID-19 pandemic now have an average junior O/C cushion of 2.76% and average 'CCC' baskets of 7.08%, while the average values for post-pandemic transaction are 3.94% and 5.70%, respectively. Given the volatility in loan prices experienced in early April, junior O/C cushions of older vintage transactions may decline for CLOs, exceeding their 7.5% 'CCC' asset threshold if corporate rating downgrades continue and loan market values remain low (though they have regained some value after the first week of April; see below).
Some issuers widely held in CLOs have recently had their ratings placed on CreditWatch negative or had outlooks that were revised to negative. Some of these rating actions have cited concerns around the impact of tariffs in their rating action press release, including Harbor Freight Tools USA Inc., which has a BSL CLO exposure of 0.21% and saw its rating placed on CreditWatch negative on April 16. There has been a small uptick in exposure to issuers with ratings on CreditWatch negative, while the overall exposure to issuers with a negative rating outlook remains low by historical standards, at least for now.
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 (%) | |||||||||||||
| April 30, 2024(i) | 25.69 | 6.13 | 0.92 | 2716 | 59.21 | 0.92 | 15.82 | 97.21 | 4.27 | 99.73 | 4.77 | |||||||||||||
| May 31, 2024(i) | 25.34 | 6.40 | 0.41 | 2679 | 59.58 | 0.93 | 15.47 | 97.33 | 4.14 | 99.65 | 4.81 | |||||||||||||
| June 30, 2024(i) | 25.24 | 6.11 | 0.33 | 2663 | 59.36 | 1.13 | 14.92 | 97.05 | 4.19 | 99.62 | 4.48 | |||||||||||||
| July 31, 2024(i) | 25.11 | 6.20 | 0.27 | 2654 | 59.28 | 0.93 | 15.00 | 97.13 | 4.20 | 99.57 | 4.27 | |||||||||||||
| Aug. 30, 2024(i) | 25.09 | 6.16 | 0.52 | 2669 | 58.90 | 1.10 | 14.68 | 97.11 | 4.13 | 99.49 | 3.81 | |||||||||||||
| Sept. 30, 2024(i) | 24.98 | 6.15 | 0.52 | 2669 | 59.06 | 1.43 | 14.90 | 97.20 | 4.00 | 99.42 | 3.90 | |||||||||||||
| Oct. 31, 2024(i) | 24.62 | 5.99 | 0.51 | 2657 | 59.10 | 1.27 | 14.20 | 97.34 | 4.04 | 99.38 | 3.53 | |||||||||||||
| Nov. 30, 2024(i) | 25.23 | 5.19 | 0.65 | 2656 | 58.80 | 1.16 | 13.30 | 97.62 | 3.97 | 99.32 | 3.63 | |||||||||||||
| Dec. 31, 2024(i) | 25.48 | 5.32 | 0.46 | 2645 | 58.68 | 1.25 | 13.33 | 97.49 | 3.93 | 99.27 | 3.78 | |||||||||||||
| Jan. 31, 2025(i) | 25.39 | 5.43 | 0.44 | 2645 | 58.30 | 0.68 | 13.23 | 97.53 | 3.88 | 99.26 | 3.64 | |||||||||||||
| Feb. 28, 2025(i) | 24.71 | 5.29 | 0.70 | 2653 | 58.27 | 0.83 | 13.16 | 97.29 | 3.87 | 99.22 | 2.88 | |||||||||||||
| March 31, 2025(ii) | 24.22 | 5.68 | 0.71 | 2662 | 58.05 | 1.09 | 12.90 | 96.45 | 3.80 | 99.18 | 2.31 | |||||||||||||
| April 22, 2025(iii) | 24.23 | 5.92 | 0.76 | 2672 | 57.52 | 1.25 | 12.81 | 94.80 | 3.80 | 99.18 | 2.29 | |||||||||||||
| (i)Index metrics based on end of month ratings and pricing data and as of month portfolio data available. (ii)Index metrics based on March 31, 2025, ratings and pricing data and latest portfolio data available to us. (iii)Index metrics based on April 22, 2025, 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 | Rank within U.S. BSL CLOs | |||||||
| March 3, 2025 | Cast & Crew LLC | Software | B-/Stable | B/Negative | Top 250 | |||||||
| March 5, 2025 | Ivanti Software Inc. | Software | CCC+/Negative | B-/Negative | Top 250 | |||||||
| March 14, 2025 | E.W. Scripps Co. (The) | Media | CC/Negative | B-/Watch Neg | 251 to 500 | |||||||
| March 17, 2025 | Polaris Newco LLC | Software | CCC+/Stable | B-/Negative | Top 250 | |||||||
| April 1, 2025 | Great Canadian Gaming Corp. | Hotels, restaurants, and leisure | B-/Stable | B/Negative | Top 250 | |||||||
| April 1, 2025 | MajorDrive Holdings IV LLC | Automobiles | B-/Stable | B/Stable | 251 to 500 | |||||||
| April 1, 2025 | Ontario Gaming GTA Limited Partnership | Hotels, restaurants, and leisure | B-/Stable | B/Negative | Top 250 | |||||||
| April 16, 2025 | Naked Juice LLC | Beverages | CC/Negative | CCC/Negative | 251 to 500 | |||||||
| GIC--Global industry classification. BSL CLO--Broadly syndicated loan collateralized loan obligation. | ||||||||||||
Loan Price Volatility In April 2025
Following the tariff announcements on April 2, the second quarter began with heightened volatility and the steepest decline in equity markets since the pandemic, followed by a significant widening of credit spreads. BSL prices experienced broad declines during the first week in April, with most loans experiencing a trough on April 7, before gradually recovering some later in the month. In the table below, we summarize the average change in loan prices between March 31, 2025, and April 7, 2025, weighted by U.S. BSL CLO exposure across the various GICS industry groups.
Table 3
| Loan price volatility in April 2025 | ||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Weighted average change in loan price between March 31, 2025, and April 7, 2025 | ||||||||||||||||||||||
| GIC industry group across U.S. BSL CLO April 2025 exposures | Exposure (%) | Exposure rated 'B-' and below (%) | Investment grade | 'BB' category | 'B+' | 'B' | 'B-' | 'CCC' category | Nonperforming | Grand total | ||||||||||||
| Household and personal products | 0.32 | 0.28 | (0.53) | 0.00 | (6.49) | (1.77) | (5.60) | |||||||||||||||
| Automobiles and components | 1.83 | 0.70 | (3.10) | (4.43) | (5.67) | (2.78) | (0.51) | 0.00 | (3.46) | |||||||||||||
| Consumer discretionary distribution and retail | 3.63 | 1.11 | (2.91) | (4.38) | (2.76) | (2.76) | (6.39) | (0.49) | (3.30) | |||||||||||||
| Consumer durables and apparel | 1.77 | 0.43 | 0.13 | (1.90) | (1.63) | (3.36) | (3.14) | (0.74) | (1.18) | (2.84) | ||||||||||||
| Transportation | 2.46 | 0.54 | (0.54) | (1.74) | (1.69) | (3.58) | (2.68) | (5.00) | (2.53) | |||||||||||||
| Technology hardware and equipment | 1.51 | 0.67 | (2.00) | (2.33) | (1.94) | (2.01) | (4.56) | 0.00 | (2.27) | |||||||||||||
| Media and entertainment | 5.70 | 1.89 | (0.19) | (1.55) | (1.89) | (2.46) | (2.32) | (4.32) | (3.10) | (2.16) | ||||||||||||
| Materials | 7.33 | 2.54 | (0.32) | (1.93) | (1.74) | (1.67) | (2.76) | (3.37) | (1.66) | (2.15) | ||||||||||||
| Capital goods | 13.06 | 3.03 | (0.84) | (1.47) | (1.68) | (2.15) | (2.74) | (2.68) | (2.03) | |||||||||||||
| Telecommunication services | 3.40 | 1.43 | (1.41) | (1.97) | (1.46) | (2.73) | (2.30) | (3.57) | (2.03) | |||||||||||||
| Consumer services | 7.29 | 1.43 | (1.52) | (1.79) | (2.17) | (2.90) | (0.79) | (0.33) | (2.00) | |||||||||||||
| Semiconductors and semiconductor equipment | 0.38 | 0.03 | (1.75) | (0.64) | (2.62) | (3.49) | (2.14) | (1.98) | ||||||||||||||
| Insurance | 3.10 | 0.26 | (1.41) | (1.65) | (1.91) | (1.69) | (1.84) | |||||||||||||||
| Software and services | 16.13 | 7.66 | (1.26) | (1.98) | (2.08) | (1.84) | (1.73) | (0.54) | (1.84) | |||||||||||||
| Real estate management and development | 0.32 | 0.06 | (0.83) | (0.30) | (6.36) | (1.77) | ||||||||||||||||
| Commercial and professional services | 7.42 | 2.37 | (1.27) | (1.62) | (1.88) | (1.70) | (2.75) | (1.72) | ||||||||||||||
| Pharmaceuticals, biotechnology, and life sciences | 2.14 | 0.58 | (0.87) | (1.68) | (1.59) | (2.91) | (1.37) | (0.14) | (1.70) | |||||||||||||
| Food, beverage, and tobacco | 2.06 | 0.55 | (1.45) | (1.16) | (1.73) | (1.73) | (3.63) | (1.15) | (1.68) | |||||||||||||
| Health care equipment and services | 9.12 | 4.35 | (1.53) | (1.59) | (1.54) | (1.67) | (2.09) | (1.06) | (1.64) | |||||||||||||
| Financial services | 5.95 | 1.21 | (1.77) | (1.34) | (1.28) | (1.55) | (1.71) | (1.81) | (1.49) | |||||||||||||
| Utilities | 1.86 | 0.15 | (1.34) | (1.01) | (3.17) | (1.44) | ||||||||||||||||
| Energy | 1.87 | 0.03 | (0.35) | (1.36) | (1.09) | (1.29) | 0.00 | (0.81) | (1.24) | |||||||||||||
| Project finance | 0.95 | 0.08 | (0.94) | (1.06) | (2.26) | (0.58) | (0.09) | (0.94) | ||||||||||||||
| Consumer staples distribution and retail | 0.20 | 0.02 | (0.78) | (0.24) | (0.52) | (1.71) | (0.33) | (0.63) | ||||||||||||||
| Equity real estate investment trusts (REITs) | 0.22 | 0.00 | (0.82) | (0.17) | (1.69) | (0.55) | ||||||||||||||||
| Total | 100.00 | 31.43 | (1.09) | (1.58) | (1.84) | (2.05) | (2.20) | (2.76) | (1.91) | (1.97) | ||||||||||||
| BSL CLO--Broadly syndicated loan collateralized loan obligation. | ||||||||||||||||||||||
The five industry groups that experienced the largest decline during the first week of April were from various consumer/retail-related sectors and auto/transport-related industries, together making up about 10% of BSL CLO exposures. We also find the loan exposures from issuers rated 'B-' and within the 'CCC' category also experienced above-average declines (exposures from the above-mentioned five industry groups from issuers rated 'B-' or lower make up just over 3% of U.S. BSL CLO exposures). The overall weighted average loan price across U.S. BSL CLO exposures have recovered some ground from the low point on April 7, 2025. The weighted average loan prices of the five consumer/retail- and auto/transport-related exposures highlighted still remain well below their values at the start of the month.
Chart 1
As a back-of-the-envelope (and quite conservative) stress, we used April 23, 2025, loan prices to conduct a simple scenario across our index of rated U.S. BSL CLOs still within their reinvestment period. We assumed current 'CCC' category loans priced below 70 would experience a default, while current 'B-' exposures priced below 90 would experience a downgrade into the 'CCC' category. This gave us:
- Nonperforming exposures may increase to 2.68% from 0.76%.
- 'CCC' category exposures may increase to 7.30% from 5.92%.
This hypothetical scenario would yield a nonperforming-to-'CCC' ratio of 2.68%/7.30%, considerably worse than the current 0.76%/5.92%. In October 2024, we published a scenario analysis to see how our BSL CLO ratings would perform under different economic environments, one of which was a "5/10" scenario, where nonperforming and 'CCC' category exposure across BSL CLO portfolios reach 5% and 10%, respectively. A 2.68/7.30 scenario is somewhere in between the current scenario and the "5/10" scenario. See tables 2 and 6 for a summary of the potential impact to our U.S. BSL CLO ratings under the "5/10" scenario (see "Stress Tests Show U.S. BSL CLO Ratings Able To Withstand Significant Loan Defaults And Downgrades (2024 Update)," published Oct. 10, 2024).
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.