Sector developments and company hires

Euro CLO coronavirus exposure mitigated
A portion (15%) of European CLO collateral is derived from the industries most vulnerable to the coronavirus pandemic, according to Moody’s. However, the agency says that the relatively few near-term maturities of affected issuers will help mitigate the negative impact.

The European CLOs that Moody’s rates have a median exposure of 14.7% to the sectors most vulnerable to economic fallout from coronavirus, with a range of 4.2% to 29.2%. Meanwhile, the median exposure of European CLOs' in industries moderately vulnerable to coronavirus fallout is 44%.

Among industries highly vulnerable to coronavirus economic fallout, hotel, gaming and leisure are CLOs' largest exposures, with a median of 5.3%. The next-largest median exposures among highly vulnerable industries is retail at 4% and durable consumer goods at 2.1%.

The average rating for all three high, medium and low exposure categories is B2. Of the highly vulnerable industries in CLO portfolios, just two - automotive and retail - have a weighted average rating of B3, while the others have weighted average ratings of B2 or higher.

Moody’s says: “Very few of the CLO obligors that are highly vulnerable to coronavirus fallout have maturities approaching in the next few years. This distribution of debt maturities will somewhat mitigate the heightened risk in debt from these industries represent, because it limits the need for obligors to refinance during distressed market conditions. That said, companies with already weak liquidity will be more at risk in a prolonged outbreak.”

Just 17.4%, or €18.9bn, of collateral in CLOs it rates matures by 2023. And companies that are both highly vulnerable to coronavirus fallout and whose debt matures in 2020 represent just 0.02% collateral. Such companies whose debt matures in 2021 represents 0.13% of collateral, followed by 1.8% in 2022 and 1.08% in 2023.

Debt maturities for those same years from both highly and moderately vulnerable companies combined represent 0.20%, 1.04%, 4.7% and 5.1% of CLO collateral. Among highly vulnerable industries, retail has the most near-term maturities, with a peak in 2022 of 0.8%.

Nevertheless, Moody’s concludes: “The ultimate impact of the coronavirus-driven decline in economic activity on CLO portfolios will depend on the duration of the pandemic, as well as the CLO manager’s trading activity… We expect that credit quality around the world will continue to deteriorate, especially for those companies in the most vulnerable sectors that are most affected by prospectively reduced revenues, margins and disrupted supply chains.”

Increasing triple-C baskets
An unprecedented 8% of US broadly syndicated loans (totalling around US$45bn) have been downgraded or placed on negative watch by S&P since the SF Vegas conference, according to BofA Global Research. Downgrades have primarily been in Covid-affected sectors, namely entertainment and leisure, gaming and hotels and airlines. Although these sectors had on average a better rating profile before the onset of the pandemic, the share of B-/lower rated issuers has doubled to 28% over the past few weeks. As a result of these downgrades, BofA estimates that pro-forma CCC/Caa1 baskets have increased from 4% to 6% across the sector, while 30% of deals are exceeding the 7.5% threshold.

Manager transfers inked
A number of CDO manager transfers have been inked this week. The collateral management agreements for the Taberna Preferred Funding II and V Trups CDOs have been assigned to Hildene affiliate HCMC III, while those for Taberna Preferred Funding III, IV, VI, VII, VIII and IX have been assigned to HCMC II. Separately, Garrison is set to assign its rights and obligations as collateral manager for Garrison BSL CLO 2016-1 and 2018-1 to Anchorage Capital Group, upon consent from a majority of the controlling class and the subordinated notes.

North America
Colony Credit Real Estate has named Michael Mazzei ceo and president. Concurrently, Andrew Witt will transition to coo, having previously served as interim ceo and president. Mazzei has served as a director of Ladder Capital Corp since June 2017, having previously served as president of the firm from June 2012. Before that, he worked at Bank of America Merrill Lynch, Barclays Capital and Lehman Brothers.

SLABS maturity risk eyed
FFELP student loan ABS are expected to exhibit higher borrower utilisation of forbearance in the short term as a result of the economic effects of coronavirus containment measures. Fitch suggests that there will be increased enrolment in income-based repayment for partial financial hardship (IBRPFH), with existing IBR borrowers potentially also re-adjusting payments lower to reflect reduced income. These trends will further slow loan payment rates, thereby increasing maturity risk and heightening downgrade rating pressure for bonds maturing in the near term, according to the agency. The US Education Department last week announced plans to provide relief to FFELP student loan borrowers, including waiving student loan interest and automatic use of forbearance for any borrower that becomes 31 days delinquent. Privately held FFELP loans are not included in this announcement.

BWIC platform access
Given the current challenges in the marketplace, KopenTech is offering six months of full free access to its BWIC platform, which includes online CLO trading. The platform is 100% web-based and will allow portfolio managers working from home to operate efficiently.