European CLOs are starting to amortise as higher liability spreads make refinancing and resets less attractive. Until recently, liability repayments have been relatively small due to the limited scheduled and unscheduled principal payments of underlying assets.
Competition for collateral continues to persist, translating in compression of the average weighted average spread (WAS) in Fitch-rated U.S. middle market (MM) CLOs and overlap in portfolios of MM and broadly syndicated loan (BSL) CLOs. These and other trends are reported in Fitch's 1Q19 MM Snapshot.
A slowdown in global auto demand is unlikely to have an impact on U.S. CLOs through their auto-related exposure. U.S. broadly syndicated loan (BSL) collateralized loan obligations (CLOs) under Fitch's surveillance are underweighted in their exposure to the auto sector compared to the broader market.
The March TTM US institutional leveraged loan default rate is expected to fall to 1.1% from 1.7% last month – the lowest level since 2011. Fitch Ratings looks at leverage-based sweeps of proceeds from asset sales as one example of recent documentation changes in its latest terms and conditions special report series.
Fitch’s Chief Credit Officer, Jeremy Carter, and Group Credit Officer, Andreas Wilgen, discuss the progress which has been made to prepare financial markets for the discontinuation of IBOR indices and highlight the risks which still remain.
Substantial progress in recent months will better prepare financial markets for the discontinuation of IBOR indices, but transition risks remain, Fitch Ratings says in a new report. Our ratings address the payment of interest (and principal) in accordance with the underlying terms of an obligation and would not be directly affected by transition from one reference rate to another or any accompanying spread adjustment.
European small and medium enterprise (SME) funding conditions are expected to remain strong in 2019 driven by a competitive banking industry, and the positive momentum of alternative lenders that enter business opportunities with more flexible arrangements.
The overlap between European and US CLO portfolios remains limited even as leveraged loan issuers cater to both regions through local currency offerings, US managers enter the European CLO market and European CLOs seek diversification from a relatively limited pool of speculative-grade issuers.
Listen as our senior analysts from Fitch’s structured credit team discuss a number of structural features observed in European CLO 2.0 deals. During the call we explained the most relevant definition of these features from a credit perspective and explored the reasons behind them.
The European leveraged loan market remains supported by a strong pipeline of collateralised loan obligation (CLO) formation and private debt funds' interest and compares favourably to competing high yield bond markets
Broadly syndicated loan (BSL), middle market (MM) and European (EU) CLO issuance was strong in 2018, with average 'AAAsf' credit enhancement (CE) levels in U.S. BSL CLOs converging with those of European CLO, according to Fitch Ratings' inaugural Global CLO Chart Book. There is more dispersion in CE levels for U.S. BSL CLOs, and they have longer reinvestment periods on average than CLOs in Europe.
Fitch Ratings sponsored and participated in a variety of conferences for broadly syndicated loan (BSL), middle market (MM) and collateralized loan obligation (CLO) participants in September through November. Venues included New York and Los Angeles in the U.S. and Tokyo, Japan and Seoul, Korea in the Asia Pacific region. This research takes up some of the most commonly discussed themes and provides Fitch’s views on these subjects.
The number of combined defaults and deferrals for U.S. bank trust preferred securities (TruPS) collateralized debt obligations (CDOs) declined to 10.7% of the original collateral balance of $37.7 billion at the end of fourth-quarter 2018 (4Q18) from 11.1% at the end of 3Q18, according to the latest index results published by Fitch Ratings.
Fitch-rated middle market (MM) CLOs continued to show stable performance during 4Q18, according to a new report by Fitch Ratings. Exposure to defaults remained low, with only one new default in the quarter, held by two MM CLOs.
Broadly syndicated loan CLOs under surveillance posted improvement in meeting collateral quality tests in fourth-quarter 2018, says Fitch Ratings in its most recent CLO Index report. Weighted average spread (WAS) stabilization continued throughout the second half of 2018 while the weighted average life (WAL) metric was also stable.
As 2018 comes to a close, leveraged loan and CLO investors are primarily focused on the economic and credit cycle, the time till the next downturn, the effects of regulation and looser documentation, Fitch Ratings says in a report about recently attended conferences.
"Late cycle behavior apparent in loan documentation and demand-driven financing to lower-rated leveraged loan issuers could pressure portfolio credit quality," said Managing Director Kevin Kendra. "However, we are projecting another year of low defaults." Fitch's year-end 2019 default rate for leveraged loans is 1.5%.
Interest coverage (IC) for U.S. broadly syndicated loan (BSL) collateralized loan obligations (CLOs) has eroded significantly in recent times, Fitch Ratings says. The trend has affected even those managers who preserved weighted average spread (WAS) at stable levels.
Industry- or sector-concentrated portfolios within collateralized loan obligations (CLOs) should cause concern for senior debt investors. Diversification has been a key mitigant to prevent losses from impacting 'AAAsf' investors during past default cycles. It is unlikely that Fitch would assign 'AAAsf' ratings to a structure with un-mitigated concentration risk.
The average weighted average spread (WAS) for broadly syndicated loan (BSL) collateralized loan obligations (CLOs) stabilized in third-quarter 2018, according to our latest U.S. CLO Index. The index covers the period to the end of September 2018. WAS averaged 3.46% at the end of September 2018, 1 bp lower than the average in the previous quarterly Index and the slowest periodic decline since June 2016.