Fitch: U.S. CLO Index Marked by Stable Performance in 1Q'15; Impact of Energy Defaults is Minimal

CHICAGO--()--Performance of U.S. CLOs remains stable in the first quarter of 2015 (1Q'15), according to Fitch Ratings in its latest quarterly U.S. CLO Index report.

Only one newly defaulted name, Quicksilver Resources, was held by one CLO at the end of the quarter. While several leveraged energy issuers filed for bankruptcy or initiated debt restructuring in the beginning of the second quarter, CLOs tracked by the Index are minimally impacted. The overall credit quality of leveraged loans within the Index remained stable.

While the average exposure to the oil and gas sector has not changed since last quarter, at approximately 5% of the total index, the report highlights difference in managers' actions in response to the sector distress, with some CLOs adding and others trimming down their energy exposure. In most CLOs that increased their sector holdings, the additions came from mid- and down-stream subsectors that are more insulated from the fall in crude prices.

Even though most 1Q'15 energy sales occurred at prices below par, the average net portfolio gain (excess of portfolio par over target par) remained relatively stable over 1Q'15, at 37 basis points (bps) on average. Many managers were able to minimize par loss by offsetting these sales with below par purchases, for example swapping a weaker credit for a stronger one within the energy sector. The overcollateralization (OC) ratios also remained stable compared to the end of last year. On a year-over-year basis, both Index average portfolio gain and average senior OC ratio declined by slightly over 20 bps.

The report also notes an elevated level of amendment activity in 1Q'15 driven by updating the S&P recovery rate tables and changes to CLO transaction terms to comply with Volcker Rule. The updated recovery rate tables benefited the S&P weighted average recovery rate (WARR) assumptions for the CLO collateral quality tests, ultimately giving managers more reinvestment flexibility.

Fitch's U.S. CLO Index is enhanced by its Excel-based Tracker Data File, which allows investors to drill down into the data presented in the Index Report. Performance metrics are normalized across transactions, allowing like-for-like comparisons across deals and managers. The Tracker includes sector-level information such as rating transitions, most referenced issuers and issuer overlap matrices; deal dashboards that present key performance statistics and 12-month trends across transactions; and individual transaction pages that present detailed deal characteristics, historical performance data and Fitch PCM model results.

The Index added 41 new CLOs that went effective in 1Q'15 with 124 CLOs included in the index at the end of the quarter.

Fitch's U.S. Leveraged Loan and CLO Index is part of Fitch's series of structured finance index reports. The index reports are updated quarterly and are available at 'www.fitchratings.com' or by clicking on the above link.

Additional information is available at www.fitchratings.com.

Applicable Criteria and Related Research: U.S. CLO Index - 1Q15

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=865861

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Contacts

Fitch Ratings
Alina Pak, CFA
Senior Director
+1 312-368-3184
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Christine Choo
Director
+1 212-908-0603
or
Media Relations:
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Alina Pak, CFA
Senior Director
+1 312-368-3184
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Christine Choo
Director
+1 212-908-0603
or
Media Relations:
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com