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2021 Outlook – With collateral still weakened, CLOs will incorporate flexibility for managing assets under stress

Amid continued collateral weakness following a tumultuous 2020, CLOs in 2021 will include structural features for maintaining loan workout and trading flexibility to help manage assets under stress. Speculative-grade defaults will peak in March and decline thereafter under our baseline economic forecast. However, subordination and other structural features such as OC trigger mechanisms will help protect investment grade CLO tranches.
Peter McNally
Vice President – Senior Analyst, ABS and RMBS Research
Moody's Investors Service


US speculative-grade default rates (actual and forecast)

Podcast - Outlooks Connections Episode 3

Lower-rated leveraged loans, junior CLO tranches to bear brunt of coronavirus impact

Christina Padgett and Sandra Veseli of the Corporates team, Al Remeza of the Structured Finance team, and Ana Arsov of the Financial Institutions team discuss the outlook for leveraged finance and collateralized loan obligations (CLOs) in the US and EMEA. Coronavirus-related defaults will likely peak in 2021, but banks’ exposure is limited. Lower-rated loans to coronavirus-exposed sectors will be worst affected, with a knock-on effect on the junior tranches of existing CLOs.

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12 Jan

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