U.S., euro CLO tranches face continued downgrades; CBO/CDO/CLO paper improves

By Cristal Cody

Tupelo, Miss., June 10 – CLO ratings actions are continuing in June in the broadly syndicated dollar- and euro-denominated markets.

Over the past week, S&P Global Ratings downgraded eight tranches from three U.S. CLOs, while Moody’s Investors Service downgraded four tranches from one U.S. CLO, according to a Wells Fargo Securities, LLC research note on Wednesday.

“For the first time since March, Moody’s downgraded five tranches from two euro CLOs with original ratings ranging from single-A to single-B,” according to the report. “On 6/9, S&P put an additional seven euro CLO tranches from six deals on watch negative – mostly BB tranches, as well as one BBB and one single-B.”

Meanwhile, so far in June, Moody’s confirmed ratings on 17 tranches from six euro CLOs and removed them from review for downgrade.

“Fitch also affirmed ratings on 37 tranches across six euro deals in the past week; the agency maintained its rating watch negative designation on eight tranches from four of the same euro deals,” the Wells Fargo analysts said.

Since March, 20 U.S. CLO tranches and 14 euro CLO tranches have been downgraded, according to the report.

“Excluding tranches no longer on watch negative, S&P has put 10% of the U.S. CLO tranches it rates on watch negative since March, Moody’s has put 23% of U.S. CLO tranches it rates on review for downgrade and Fitch has put less than 2% of U.S. CLO tranches it rates on rating watch negative,” the analysts said.

“Since March, S&P has placed over 2% of euro CLO tranches it rates on watch negative, Moody’s has 15% of euro CLO tranches it rates on review for downgrade, and Fitch has put around 15% of euro CLO tranches it rates on rating watch negative.”

Primary market activity remains light with no refinancing action seen since March, sources report.

More than $25 billion of dollar-denominated CLOs and over €7 billion of European CLOs have priced year to date.

Non-high-grade active

Looking at the secondary market, $302.62 million of non-high-grade CBO/CDO/CLO paper was traded on Tuesday, up from $182.44 million on Monday, according to Trace data.

High-grade supply fell slightly to $441.24 million on Tuesday from $471.57 million of investment-grade CBO/CDO/CLO paper traded on Monday.

Average prices for lower-rated paper softened to 80.70 on Tuesday from 81.70 at the start of the week but remain well above where the paper traded in the same period a week ago at 72.40, Trace data shows.

High-grade CBO/CDO/CLO paper also was softer on Tuesday at 96.30 from 96.80 on Monday but still improved from where the paper averaged at 94.20 in the same period a week ago.

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