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Global Credit Research - 19 Dec 2011
Paris, December 19, 2011 -- US collateralized loan obligations (CLOs) issued in 2012 will have a strong
credit profile, according to a new report from Moody's Investors
Service. Moody's has a stable outlook for the performance
of outstanding US CLOs and a negative outlook for the performance of European
CLOs. New issuance of CLOs in 2012 will continue to originate primarily
in the US because of challenging economic conditions in Europe.
Features in new US CLOs will offer more protection for debt investors
than did features in pre-credit crisis transactions; hence,
post-crisis CLO structures will better withstand another downturn.
"This increased protection includes strong subordination,
tight investment constraints, and enhanced documentation provisions,
which we expect will mirror the attributes of typical 2011 US CLOs,"
says Moody's Senior Vice President Danielle Nazarian.
Moody's stable outlook for outstanding US CLOs reflects a low corporate
default rate forecast and stable to positive rating outlooks for speculative-grade
issuers. US leveraged loan issuers have significantly improved
their balance sheets and pushed back loan maturity schedules, supporting
a stable outlook for the primary collateral backing CLOs. Nonetheless,
while the risk of recession in the US remains low, continued stress
in the euro area and high volatility in the financial markets will tighten
funding for leveraged loan issuers, presenting moderate downside
risks to US CLO performance.
The outlook for outstanding European CLOs is negative primarily because
of the rising risk of recession in the euro area. "The European
sovereign debt crisis has tightened funding from the financial markets,
increasing refinancing risk for speculative-grade companies,
and particularly for companies with ratings at B3 or below. This
will negatively affect European CLO collateral," says Moody's
Vice President Guillaume Jolivet.
However, a number of positive factors help mitigate the risk to
CLOs of the European sovereign debt crisis. CLOs continue to deleverage
at a fast pace as more than half of the outstanding US CLOs and European
CLOs will be in their amortization periods by the end of 2012.
Additionally, built-in cash flow diversion mechanisms in
CLOs will further offset potential performance deterioration by triggering
deleveraging.
The report, "US and European CLOs: 2012 Outlook,"
and all of Moody's 2012 structured finance outlooks, are available
at www.moodys.com/2012sfoutlooks.
***
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Guillaume Jolivet
Vice President - Senior Analyst
Structured Finance Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
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Jian Hu
MD - Structured Finance
Structured Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's: 2012 US CLO Credit Strong, Performance Stable in US, Negative in Europe
No Related Data.
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