CHICAGO--(BUSINESS WIRE)--Link to Fitch Ratings' Report: U.S. CLO Index
Volatile energy prices are not expected to cause significant underperformance for U.S. CLOs 2.0, according to Fitch Ratings in its latest quarterly U.S. CLO index.
That said, a potential increase in 'CCC' asset exposure could erode coverage test cushion on a handful of CLOs with a larger exposure to inferior energy credits. It should be noted, however, that not all issuers in the energy sector are immediately sensitive to the recent slide in energy prices.
At the end of 2014, the average energy exposure across all CLOs in Fitch index stood at 6%, virtually identical compared to third quarter-2014 (3Q'14). Among the nearly $2.8 billion of energy exposure across Fitch's index, 20.4% had a Fitch derived rating of 'BB' and 74.2% of B. The 1.7% rated 'CCC' represents five issuers held in a limited number of CLOs.
Fitch reports that 10 out of its 83 CLOs in the index have energy, oil and gas as their top industry (average exposure of 13.1%). The effect of volatile oil prices on specific loan issuers depends on many factors. Whether the issuer operates in the upstream, midstream or downstream segment is one of the key determinants of the sensitivity of its financial performance to volatility in energy prices. The report highlights relative susceptibility and main credit drivers for each energy sub-sector and details the largest energy issuers held by the index CLOs.
For example, E&P and oil field service companies are the two upstream subsectors most exposed to commodity price changes due to the direct relation to cash flow. Conversely, midstream companies are typically more insulated from price changes while the effect of oil price fluctuation can vary significantly for downstream operators.
Fitch's U.S. Leveraged Loan and 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. The Index Report 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.