Sector developments and company hires

Older CLOs underperforming
A significant proportion of all the US BSL CLOs S&P has on negative watch closed in 2015 or before. The rating agency reports that such deals also experienced a steeper average decline in OC cushion, falling by 3.23%, and their average junior OC cushion is now approaching 0%.

Of the 410 currently reinvesting deals within the S&P Global CLO Insights 2020 Index, 111 originally closed in 2015 or earlier. This cohort of CLOs typically went through a reset in 2017 or 2018, extending their reinvestment end dates to 2021 and later, but keeping their capital structure broadly unchanged.

The 2015 and prior cohort of CLOs had been through the energy slowdown and are likely still reinvesting through the current recession, S&P says. Further, these deals entered 2020 with a notably lower average junior OC cushion, at 3.29%, due to credit deterioration and potential par loss as managers tried to remove energy related exposures. In contrast, 2016 vintage deals did not experience as much deterioration as they closed in the middle of the energy slowdown and typically have much less energy related exposure.

In other news…

GSE advisors named
Fannie Mae and Freddie Mac have hired Morgan Stanley and JPMorgan respectively as their financial advisors to help facilitate the GSEs’ recapitalisation and exit from conservatorship. The move follows competitive requests for proposals announced last month (SCI 20 May). While developing the appropriate strategies, the advisors will work closely with the GSEs, the FHFA and the US Treasury to consider business and capital structures, market impacts and timing, as well as available capital raising alternatives.

TALF rates set
The New York Fed has released the rates for the first TALF 2.0 subscription, which is scheduled for tomorrow (17 June) at between 8am and 3pm ET. For fixed rate loans with WALs of less than two years, the rate is two-year OIS plus 125bp; for fixed rate loans with WALs of over two years, it is three-year OIS plus 125bp (for SBA 504 loans, it is 75bp). The rate is 30-day SOFR plus 150bp for leveraged loans and Top of the Fed Funds Target Range plus 75bp for SBA 7(a) loans. There is also a 10bp administrative fee.