Fitch: Senior U.S. CLO Notes Still Insulated From Downgrades

CHICAGO--(BUSINESS WIRE)-- Link to Fitch Ratings' Report: U.S. CLO Index: Par and OC Cushions Continue to Decline in U.S. CLOs

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=880263

Fewer U.S. CLOs are escaping the rising number of defaulted issuers, though Fitch rated 'AAA' tranches should remain shielded from potential downgrades, according to Fitch Ratings in its latest U.S. CLO index.

Approximately 70% of 233 deals in Fitch's index had exposure to at least one defaulted issuer, with 16% exposed to at least three defaulted issuers. The number of CLOs with exposure to defaults increased to 159 from 97 last quarter. Additionally, the notional of defaulted collateral is now at $787 million (0.64% of the aggregate index portfolio) from $392 million (0.35%) at the end of last year. Index CLOs' exposure to Fitch's Loans of Concern also inched up to 9.6% of the aggregate index portfolio from 8.4% at the end of last year.

Recent lower loan prices have allowed CLO managers to add to the deals' par. However, this was outweighed by the haircuts on the increasing exposure to defaulted obligations and excess CCC for some 2013-2014 deals. Fitch notes that three CLOs in its index were failing their interest diversion test at the end of first quarter, while another four have less than 1% cushion.

That said, ratings of senior notes of Fitch-rated 2.0 CLOs are expected to remain resilient. Collateral losses to date and projected by Fitch's portfolio default model remain well below 'AAAsf' stress levels applied at the time of Fitch's initial rating analysis. Fitch expects senior notes to be insulated from further losses due to credit enhancement levels along with operation of both collateral quality and coverage tests. Most CLOs in the index are still in their reinvestment periods, allowing CLO managers to add par. Fitch reviewed 79 CLO transactions in the first quarter of 2016 affirming and assigning stable outlook to the notes of all reviewed transactions.

Fitch's latest 'U.S. CLO Index' and 'U.S. CLO Tracker' are available at 'www.fitchratings.com' or by clicking on the links embedded in this release.

Additional information is available at www.fitchratings.com

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View source version on businesswire.com: http://www.businesswire.com/news/home/20160420006365/en/

Fitch Ratings
Alina Pak, CFA
Senior Director
+1 312-368-3184
Fitch Ratings, Inc., 70 West Madison Street, Chicago, IL
or
Kevin Kendra
Managing Director
+1-212-908-0760
or
Media Relations:
Sandro Scenga, +1 212-908-0278
[email protected]

Source: Fitch Ratings

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