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U.S., euro CLO ratings downgrades continue; CBO/CDO/CLO paper broadly softens
By Cristal Cody
Tupelo, Miss., July 8 – CLO ratings downgrades are continuing this week, while prices have softened in the secondary market.
“Over the past week, Moody’s has downgraded another 14 U.S. CLO tranches across six CLOs, including 4 single-A’s, 3 BBB’s, 5 BB’s, and 2 single-B’s,” according to a Wells Fargo Securities, LLC research note on Wednesday.
Moody’s Investors Service also has downgraded four more euro CLO tranches.
Also over the past week, Fitch Ratings downgraded seven euro CLO BBB and below tranches across six CLOs and added four euro BBB through single-B tranches to its ratings watch negative list, the report said.
“Moody’s has downgraded almost 2% of U.S. CLO tranches it rates and 2% of euro CLO tranches that the agency rates,” the Wells Fargo analysts said. “Fitch has downgraded over 1% of euro CLO tranches it rates, but has not yet downgraded any U.S. CLOs.”
Excluding tranches removed from watch, S&P Global Ratings has put over 13% of the U.S. CLO tranches it rates on watch negative, Moody’s has put over 21% 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, according to the report.
No middle-market CLOs have been downgraded since March, the analysts said.
Secondary prices soften
Meanwhile, CBO/CDO/CLO paper softened across the capital stack as secondary volume ramped up on Tuesday, Trace data shows.
Investment-grade trading volume totaled $311.04 million, up from $225.61 million on Monday.
High-grade CBO/CDO/CLO paper traded at an average 96.10, down from 98.20 at the week’s start.
Further down the capital structure, $167.36 million of lower-rated CBO/CDO/CLO paper was traded on Tuesday compared to $54.96 million on Monday.
Average prices softened to 85.50 from 88.50 on Monday.
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