Sector developments and company hires

Corporate actions slow down
Negative rating actions on corporate loan issuers continue to accumulate within US BSL CLOs, though the pace is moderating, according to S&P. Since early March, more than 28% of US BSL CLO collateral has been downgraded or placed on credit watch negative by the agency, while triple-C buckets have tripled to 12.3% from about 4% (though the pace has slowed) and 418 tranches across 316 CLO transactions are currently on negative watch. S&P notes: “The CLO structures are working as intended during periods of economic stress: about 10% of CLOs within the CLO Insights 2020 Index with failing junior OC tests have begun diverting interest proceeds away from equity holders to reduce the outstanding balance of the CLO senior notes.”

GSEs defer forborne payments
Fannie Mae and Freddie Mac have announced that borrowers who have been impacted by Covid-19 may now defer all their forborne payments into a non-interest-bearing balance that is due when they sell their home, refinance their mortgage or at maturity. Effectively, providing they restart their monthly payments at the end of their forbearance, borrowers can defer the rest of the payments as a balloon payment until they pay off their mortgage. This will not be treated as a prepay or credit event and therefore is expected to be positive for both homeowners and mortgage investors.