S&P: CLO exposure to recent Oil & Gas rating actions is limited

Standard & Poor’s Ratings Services has reviewed exposure in U.S. CLO transactions to the 23 oil and gas exploration and production companies whose ratings were affected by its Jan. 16, 2015 rating actions.

As per that report, the following borrowers were downgraded:

  • WPX Energy, to BB/Stable from BB+/Negative
  • Energy XXI, to B/Negative from B+/Negative
  • Warren Resources, to B-/Stable from B/Stable
  • Swift Energy, to B-/Stable from B/Stable
  • Midstates Petroleum Co., to B-/Negative from B/Stable
  • Magnum Hunter Resources Corp., to CCC+/Negative from B-/Negative
  • Black Elk Energy Offshore Operations, to CCC-/Negative from CCC+/Negative
  • Rooster Energy, to CCC-/Negative from CCC+/Developing.


The following borrowers had their outlook revised:

  • Chesapeake Energy Corp., to stable from positive (affirmed ‘BB+’ corporate credit rating)
  • Whiting Petroleum Corp., to negative from stable (affirmed ‘BB+’ corporate credit rating)
  • SM Energy Co., to stable from positive (affirmed ‘BB’ corporate credit rating)
  • Denbury Resources, to negative from stable (affirmed ‘BB’ corporate credit rating)
  • Legacy Reserves, to negative from stable (affirmed ‘B+’ corporate credit rating)
  • Chaparral Energy, to stable from positive (affirmed ‘B’ corporate credit rating)
  • Halcon Resources Corp., to negative from stable (affirmed ‘B’ corporate credit rating)
  • SandRidge Energy, to negative from stable (affirmed ‘B’ corporate credit rating)
  • Sabine Oil & Gas, to negative from stable (affirmed ‘B’ corporate credit rating)
  • Clayton Williams Energy, to negative from stable (affirmed ‘B’ corporate credit rating)
  • EXCO Resources, to negative from stable (affirmed ‘B’ corporate credit rating)
  • American Eagle Energy Corp., to negative from stable (affirmed ‘CCC+’ corporate credit rating).


The following borrowers had their rating placed on CreditWatch negative:

  • Apache Corp. – ‘A-’ rating on CreditWatch with negative implications
  • Breitburn Energy Partners – ratings placed on CreditWatch with negative implications.


The following borrower had its rating affirmed:

  • Continental Resources – ‘BBB-’ corporate credit rating affirmed. The outlook is stable.


Based on the agency’s review, a total of 17 U.S. CLOs have exposure to companies whose ratings were either lowered or placed on CreditWatch negative as part of the Jan. 16 rating actions. The largest exposure was 0.62%. All other exposures were less than 0.5%. Based on the small exposure, S&P doesn’t expect any rating actions for U.S. CLO transactions as a result of the Jan. 16 rating actions.

Based on its review in December 2014 of roughly 700 U.S. CLOs, the average CLO exposure to loans issued out of the oil and gas sector was only about 3.3%.

S&P will continue to review whether, in its view, the ratings currently assigned to CLO transactions exposed to the oil and gas sector remain consistent with the credit enhancement available to support them. – Staff reports


US House passes Volcker extension legislation

The U.S. House of Representatives today passed legislation that would grant a two-year extension, to July 21, 2019, of the application of the Volcker Rule to banks’ AAA and AA CLO holdings. The bill passed by a vote of 271-154.

As reported, the legislation, H.R. 37, last week failed as it was brought to the House floor under suspension of the rules, a parliamentary measure that requires two-thirds approval.

The bill now moves to the Senate. The White House, however, has indicated President Obama would veto the bill.

“The LSTA is encouraged that the House of Representatives passed a narrow Volcker fix, which will prevent banks from engaging in a forced sale of well-performing CLO AAA and AA notes,” said Meredith Coffey, executive vice president of research and analytics at the LSTA. “We hope the Senate and the Administration support this sensible modest improvement.”

LSTA Executive Director Bram Smith yesterday wrote a letter to the House Financial Services Committee Chairman Rep. Jeb Hensarling (R-Texas) and Ranking Member Rep. Maxine Waters (D-Calif.) expressing the organization’s support for the legislation, and specifically the language that would extend to 2019 implementation of the Volcker Rule with respect to banks’ CLO holdings.

“If left unaddressed, banks will be forced to sell these safe investments to opportunistic buyers who will demand a deep discount. If Volcker implementation is extended just two years, this problem will resolve itself,” Smith wrote, noting that by 2019, the vast majority of the CLO notes that are not Volcker compliant will have matured or been redeemed.

For the text of the legislation, click here. – Kerry Kantin


Leveraged loan mart softens in December as demand deficit deepens

loan supply v demand

Loan market technical conditions weakened in December as capital formation faded more quickly than supply. In all, the amount of S&P/LSTA Index loans outstanding exceeded visible demand from CLO formation and retail flows by $5.8 billion: $7.9 billion to $2.1 billion. It was the deepest demand deficit in three months, edging November’s $5.5 billion figure. – Steve Miller

This analysis is part of a longer LCD News story, available to subscribers here, also details

  • US prime fund flows
  • US CLO issuance
  • Volume of leveraged loans breaking for trading
  • Loan outstandings
  • Secondary loan prices
  • Leveraged loan returns
  • Loan yields


Follow Steve on Twitter for leveraged loan insight and analysis.


Leveraged loan fund outflows ease to $374M; little ETF influence

US leveraged loan fund flows

Cash outflows from bank loan funds diminished significantly in the first 2015 full-week reading, at $374 million for the week ended Jan. 7, according to Lipper. That’s down from $1 billion last week, $1.3 billion two weeks ago, and a whopping $1.8 billion in the week ended Dec. 17, 2014.

Just like last week, the influence from exchange-traded funds was essentially nil, at just 1% of the redemption, or $2.3 million over the past week. Recall that ETFs were heavy, at 18% of the big withdrawal three weeks ago, and that was anomalous to most every other reading during the year.

The latest outflow represents the 26th consecutive weekly withdrawal and the 37th outflow in 39 weeks, for a net redemption of $24.6 billion over that span.

The trailing four-week average moderates to negative $1.1 billion for the week, from negative $1.3 billion last week and negative $1.2 billion two weeks ago. Last week’s observation was the deepest in roughly 3.5 years, or since the week ended Aug. 31, 2011.

The outflow kicking off the New Year is in contrast to last year, which showed a net inflow of $1 billion during the first week of the year. For the full-year 2014, outflows were roughly $17.3 billion, with ETFs representing about 3% of that total, or $516 million.

In today’s report, the change due to market conditions was negative $272 million, for a 0.3% decline against total assets, which were $88.3 billion at the end of the observation period. The ETF segment comprises $6.8 billion of the total, or approximately 8%. – Matt Fuller

Follow Matthew on Twitter @mfuller2009 for leveraged debt deal-flow, fund-flow, trading news, and more.


US CLO Issuance Hits Record $124.1B in 2014

US CLO issuance

The U.S. CLO market printed $124.1 billion of new issues from 234 deals in 2014, according to LCD. That’s up from $83 billion in 2013 and blows through the previous high of $97 billion in 2006.

CLO issuance in December totaled $7.75 billion from 16 deals. It was the third lightest month of the year, ahead of just January ($2.55 billion) and September ($7.73 billion) At $13.78 billion, June topped the issuance charts last year, according to LCD.

Looking to this year, the general sense is that CLO issuance will continue albeit at a reduced rate. Regulatory uncertainty (risk retention, Volcker) and rising rates are likely to be key focal points for market players, who will also be watching for risk retention consolidation/strategic partnership plays. – Sarah Husband

Follow Sarah on Twitter for CLO market news and insight.


US Leveraged Loans Return Slim 1.60% in 2014; Lose 1.25% in Dec.

leveraged loan returns-annual

The S&P/LSTA Leveraged Loan Index return fell to a three-year low of 1.60% in 2014, from 5.29% in 2013. The Loan 100 lagged the broader Index in 2014 with a 0.99% return, after advancing 5.02% in 2013.

leveraged loan returns-monthly

For December, the S&P/LSTA Index returned negative 1.25%, as loans traded lower in the face of record retail outflows and crumbling investor sentiment early in the month.

It was the biggest monthly setback for the Index since August 2011, when returns plunged to a post-credit-crisis low of negative 4.40% amid a cocktail of exogenous events that was capped by S&P’s downgrade of the U.S.’s credit rating. – Steve Miller

Follow Steve on Twitter for leveraged loan news and market insight.


Limping to Finish Line: Leveraged Loans lose 0.91% in 2014′s 4Q

US leveraged loan returns
The rocky climate in the U.S. leveraged loan market of late is reflected in the S&P/LSTA Index, which saw its worst quarter performance -wise since the third quarter of 2011, with a return of negative 0.91% between Oct. 1 and Dec. 18.

The analysis is part of a longer LCD News story, available to subscribers here, that also details

  • New-issue yields
  • Covenant-lite volume
  • Quarterly leveraged loan volume
  • Quarterly leveraged loan volume, by purpose
  • Repricing loan volume
  • Annual loan volume
  • Dividend loan volume
  • Refinancing loan volume

2014 Leveraged Loan Investor Market: CLOs dominate as retail bid, banks fade

loan investor market

Over the final three months of 2014, the investor base for leveraged loans shifted further away from loan mutual funds, which were wracked by significant outflows. The continued strength of the new-issue CLO market only partially filled the void, forcing arrangers and issuers to sweeten challenging deals to attract relative-value investors in search of wide-margin paper. – Steve Miller

Follow Steve on Twitter for leveraged loan analysis and insight.



Leveraged loan fund assets hit 15-month low as outflows persist

loan fund assets under management

The assets under management of loan mutual funds fell by $1.2 billion in November, to a 15-month low of $151.0 billion, according to Lipper FMI and fund filings. After reaching an all-time high of $175.1 billion in March, loan funds have suffered eight straight months of AUM erosion, during which they have contracted by $24.1 billion, or 13.8%. – Steve Miller

Follow Steve on Twitter for leveraged loan market news and insights. 


Oil & Gas Credits Comprise 4.5% Of Outstanding Leveraged Loans

leveraged loan oil and gas outstanding

The plunge in oil prices has pummeled both leveraged loans and, more famously, high yield bonds of late.

But while some 16% of high yield bonds support oil & gas related issuers (per the Bank of America Merrill Lynch High Yield Index), only 4.5% of outstanding leveraged loans back O&G concerns, according to the S&P/LSTA Leveraged Loan Index.

Year to date, oil & gas concerns have a bit more of a presence, accounting for 7% of new issuance in the U.S.

loan issuance by industry YTD