NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) releases our inaugural Sector Outlook for Structured Credit.
As the calendar turns to 2019, the major themes in Structured Credit point to the same conclusion: the securitization market is booming, and the rest of the world is taking notice. The hunt for yield continues as investors pour capital into U.S. structured products from around the globe. The market has become a lightning rod for headlines as the press continues to draw comparisons between leveraged loans and the subprime mortgages of the Aughts. From a credit perspective, the normalization of covenant-lite, EBITDA add-backs, and higher leverage has not yet translated into meaningful default or recovery impact. Non-investment grade borrowers continue to generate debt-servicing cash in a healthy, expanding U.S. economy. Kroll Bond Rating Agency (KBRA) presents an overview of key themes heading into 2019:
- Let the Good Times Roll: 2018 was a banner year for the securitization market amid record issuance of CLOs, the return of Trust Preferred CDOs, new global participants, and growing interest in new types of funding structures.
- Remain Prudent: Supply and demand dynamics shift transaction influence from lender to borrower. Weaker collateral and looser documents should differentiate managers and force investors to be more diligent.
- The Press Chimes In: 2008 casts a long shadow on structured products. The 10-year anniversary of the recession gives the media an opportunity to sensationalize the credit cycle. There will likely be further widespread scrutiny on securitization.
- We’re Going Extra-Innings: The current credit cycle should extend into 2019. Market participants acknowledge we are in the late stages of an expansion and growth as recently slowed which is causing concern that defaults may creep in incrementally by sector. The absence of loan covenants could result in delayed defaults with lower recoveries and may contribute to a longer, shallower downturn.
The report highlights trends in CLO spread and issuance, TruPS CDOs, and factors that could influence structured credit overall issuance in 2019. KBRA also provides 2019 forecasts for new issue, CLO “re-dos”, TrUPS CDOs, and leveraged loans. We also touch upon leveraged loan fundamentals and performance outlook.
Related Publications: (available at www.kbra.com)
- Global Structured Credit Rating Methodology, Aug. 7, 2018
- What is the Loan Market Telling Us?
- New Issue Report: THL Credit Wind River 2015-1 CLO Ltd.
- Credit Suisse ABS Repackaging Trust 2018-PS1 New Issue Report
- Par Wars: Attack on the Loans, September 20, 2018
- Return of the TruPS: Overview of New Issuance of Bank and Insurance CDOs
- Not Your Father’s WARF
- ABS East 2018: Let the Good Times Roll?
- Is Retail the Credit Market’s New Energy?
CONNECT WITH KBRA
Twitter
LinkedIn
Download
the iOS App
YouTube
About KBRA and KBRA Europe
KBRA is a full service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus, is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider, and is a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.
