Sector developments and company hires

MM CLO test failures rise
The continued deterioration in credit quality of issuers due to the coronavirus pandemic resulted in a large number of US middle market CLOs failing a variety of tests for the first time in 2Q20, according to Fitch’s latest report on the sector. Of the 58 MM CLOs covered in the report, 23 failed at least one collateral quality test (CQT), compared to seven in the previous quarter.

The CQT with the most failures was the minimum Fitch weighted average recovery rate (WARR) test. In addition to CQTs, 20 MM CLOs are failing at least one triple-C concentration limitation, compared to only three deals in 1Q20. Over 50% of MM CLOs included in this report are failing at least one CQT or triple-C test.

The overall level of defaulted issuers ticked up but still remained historically low at 1.6% across all Fitch rated MM CLOs, compared to 0.9% last quarter. The report notes that in the early months of lockdowns in the US, many obligors were able to draw down revolvers or defer a portion of their scheduled interest payments to obtain additional liquidity.

North America
Ken Shinoda, a founding member of DoubleLine Capital and the director of its residential mortgage credit investment activities, has been appointed co-portfolio manager of the DoubleLine Total Return Bond Fund. The fund's prospectus-named co-portfolio managers are now ceo and cio Jeffrey Gundlach, Andrew Hsu and Shinoda. The fund invests primarily in agency and non-agency RMBS, CMBS, CLOs and ABS. Shinoda is a permanent member of DoubleLine's fixed income asset allocation committee and the chair of the structured products committee. Prior to DoubleLine, he was vp at TCW, where he worked in portfolio management and trading in the MBS group headed by Gundlach.