Approximately $22 billion of securities affected
NOTE: On August 12, 2020, the press release was corrected as follows: The first sentence of the first paragraph of the press release was changed to “Moody's Investors Service announced today that it has placed on review for downgrade its ratings on 859 securities ("CLO Securities") issued by 358 US broadly syndicated loan-backed (BSL) collateralized loan obligations (CLOs), plus another 25 linked secured notes and repackaged securities;” the last sentence of the first paragraph of the Ratings Rationale section was changed to “The rating actions on the secured notes and repackaged securities, which are backed by CLO debt or equity securities, result from their dependence on the CLO Securities we placed on review for downgrade as part of today's action;”the fifth paragraph of the Ratings Rationale section was changed to “1. For CLO Securities currently rated A1(sf) -- A3(sf), if the CLO's Moody's-calculated WARF as of April 7, 2020 ("Updated WARF") is at least 20% worse than its reported WARF in March, and the CLO's mezzanine senior OC ratio (par coverage ratio for securities originally rated A1(sf) - A3(sf)) has decreased by more than 1% since Moody's last rating action;” the sixth paragraph of the Ratings Rationale section was changed to “2. For CLO Securities currently rated Baa1(sf) or lower, if (a) the CLO's Updated WARF is more than 15% worse than its reported WARF in March, or (b) the CLO's Updated WARF is no more than 15% worse than its reported WARF in March and the CLO's mezzanine junior OC ratio (par coverage ratio for securities originally rated Baa1(sf) - Baa3(sf)) has decreased by more than 0.75% since Moody's last rating action;” the seventh paragraph of the Ratings Rationale section was changed to “ In addition, Moody's placed on review for downgrade its ratings on 25, secured notes and repackaged securities on review for downgrade if they were collateralized by a CLO Security whose rating Moody's placed on review for downgrade in this rating action;" the eight paragraph of the Ratings Rationale section was removed; and In the Factors that Would Lead to an Upgrade or Downgrade of the Ratings section, the first sentence was changed to “The performance of rated CLO Securities, and dependent secured notes, and repackaged securities is subject to and is sensitive to the performance of the related CLOs' underlying portfolio and related CLOs, respectively, which in turn depends on economic and credit conditions that may change” and the third sentence was changed to “Finally, to the extent that trading is permitted and feasible with respect to a CLO, the applicable CLO manager's investment decisions and management of such transaction will also affect the performance of the CLO's rated CLO Securities and any rated linked secured notes, and repackaged securities.” Revised release follows.
New York, April 17, 2020 -- Moody's Investors Service announced today that it has placed on review for downgrade its ratings on 859 securities ("CLO Securities") issued by 358 US broadly syndicated loan-backed (BSL) collateralized loan obligations (CLOs), plus another 25 linked secured notes and repackaged securities. The CLO Securities include 13 rated
A1(sf) - A3(sf), 355 rated Baa1(sf) - Baa3(sf),
369 rated Ba1(sf) - Ba3(sf), and 122 rated B1(sf) or below.
The affected securities represent approximately 19% of Moody's
US-rated broadly syndicated loan (BSL) CLO securities.
During its review, Moody's will assess the impact of the ongoing
credit shocks on CLO ratings taking into account (1) the credit quality
of individual deals' most current portfolios, (2) manager
trading strategies, (3) CLO structural mechanisms such as over-collateralization
(OC) test haircuts for "excess" Caa exposures, and (4)
and macroeconomic and credit market conditions. Moody's generally
strives to conclude the rating reviews within 90 days. However,
due to the high degree of uncertainty in the current credit environment,
the resolution of this watch-list action may extend beyond our
usual timeframe.
Due to the significant uncertainty over the breadth and depth of the negative
effects of the coronavirus credit shock and the ongoing rating reviews
on vulnerable CLO portfolio obligors, it is possible that additional
CLOs, CLO Securities, or linked securities could be put on
review for downgrade.
Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_ARFTL423016
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
RATINGS RATIONALE
The rating actions on the CLO Securities are primarily a result of the
credit quality deterioration stemming from the coronavirus outbreak,
and our assessment that expected losses ("ELs") on these CLO
Securities have increased materially. Expected Loss varies by CLO
Security, and is a function of, among other things,
(1) a CLO's exposure to obligors whose ratings were recently downgraded,
are currently on review for downgrade, or have negative credit outlooks,
(2) a CLO Security's priority in the related CLO's capital
structure, or (3) the level of credit enhancement available for
a CLO Security either from over-collateralization or from cash
flows that would be diverted as a result of coverage test failures.
The rating actions on the secured notes and repackaged securities, which are backed by CLO debt or equity securities, result from their dependence on the CLO Securities we placed on review for downgrade as part of today's action.
To identify the CLO Securities subject to today's rating action,
Moody's assessed how negative movements in key portfolio credit
quality metrics such as weighted average rating factor (WARF) migration
and par erosion -- impact the rated securities. Moody's
performed sensitivity analyses to test and calibrate how changes in levels
of these key drivers impact modeled ELs. The observed EL changes
and model-implied rating transitions based solely on changes in
these key drivers were used as a framework for estimating the likely occurrences
of material EL changes in the US BSL CLOs Moody's rates.
Moody's also noted that the impact of these drivers is most significant
on mezzanine and junior CLO securities. The sensitivity analysis
revealed that the senior securities, which have significant credit
enhancement and also benefit from cashflow diversion mechanism are well
protected from the negative WARF movements evidenced to date.
Under this approach, for today's rating actions Moody's
calculated a CLO's WARF deterioration from March through early April,
and also any par erosion as of early April 2020 since the last rating
action. Notably, Moody's calculated an average reported
BSL CLO WARF of approximately 2916 as of March 2020 and an average recalculated
WARF of 3322 as of April 2020 -- a deterioration of 406 points,
or 14%, on average since March.
Based the information obtained under this approach, Moody's
concluded that most CLO securities it rates likely have ELs that could
exceed the benchmark corresponding to their current ratings if they meet
either of the following conditions:
1. For CLO Securities currently rated A1(sf) -- A3(sf), if the CLO's Moody's-calculated WARF as of April 7, 2020 ("Updated WARF") is at least 20% worse than its reported WARF in March, and the CLO's mezzanine senior OC ratio (par coverage ratio for securities originally rated A1(sf) - A3(sf)) has decreased by more than 1% since Moody's last rating action;
2. For CLO Securities currently rated Baa1(sf) or lower, if (a) the CLO's Updated WARF is more than 15% worse than its reported WARF in March, or (b) the CLO's Updated WARF is no more than 15% worse than its reported WARF in March and the CLO's mezzanine junior OC ratio (par coverage ratio for securities originally rated Baa1(sf) - Baa3(sf)) has decreased by more than 0.75% since Moody's last rating action.
In addition, Moody's placed on review for downgrade its ratings on 25, secured notes and repackaged securities on review for downgrade if they were collateralized by a CLO Security whose rating Moody's placed on review for downgrade in this rating action.
Moody's considered in its analysis the increased uncertainty relating
to the effect of the coronavirus outbreak on the US economy as well as
the effects that the announced government measures put in place to contain
the virus, will have on the performance of corporate assets.
Moody's regards the coronavirus outbreak as a social risk under
our ESG framework, given the substantial implications for public
health and safety. It is a global health shock, for which
it is extremely difficult to provide an economic assessment. The
degree of uncertainty around our forecasts is unusually high.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Global Approach
to Rating Collateralized Loan Obligations" published in March 2019 and
available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1111156.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Factors that Would Lead to an Upgrade or Downgrade of the Ratings:
The performance of rated CLO Securities, and dependent secured notes, and repackaged securities is subject to and is sensitive to the performance of the related CLOs' underlying portfolio and related CLOs, respectively, which in turn depends on economic and credit conditions that may change. In particular,
the length and severity of the economic and credit shock precipitated
by the global coronavirus pandemic will have a significant impact on the
performance of the securities. Finally, to the extent that trading is permitted and feasible with respect to a CLO, the applicable CLO manager's investment decisions and management of such transaction will also affect the performance of the CLO's rated CLO Securities and any rated linked secured notes, and repackaged securities.
REGULATORY DISCLOSURES
The List of Affected Credit Ratings includes additional disclosures that
vary with regard to some of the ratings. Please click on this link
https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_ARFTL423016
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
• Person Approving the Credit Rating
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
Moody's did not use any models, or loss or cash flow analysis,
in its analysis.
Moody's did not use any stress scenario simulations in its analysis.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead rating analyst and the Moody's legal entity that has issued
the ratings.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Aniket Deshpande
VP-Sr Credit Officer
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Dev Chatterjee
MD - Structured Finance
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
David Ham
VP - Senior Credit Officer
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653