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Moody’s Talks - Outlook Connections
Episode 3
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December 1, 2020
Lower-rated leveraged loans, junior CLO tranches to bear brunt of coronavirus impact in 2021
Inside this episode:
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.
Related content
- Leveraged Finance – EMEA: 2021 Outlook - Cheap money will support issuance, but economic recovery is at risk Demand will continue to exceed supply in 2021, while debt issuance will be somewhat ahead of 2020 levels, supported by M&A. We expect 2021 to be a year of uneven recovery, with governments and central banks continuing to provide support to economies and liquidity to the financial markets.
- US CLO 2021 Outlook – With collateral still weakened, CLOs will incorporate flexibility for managing assets under stress Managers will focus on minimizing losses on defaulted or stressed assets and maneuvering around OC test thresholds.
- European CLO 2021 Outlook - 2021 Outlook – Collateral quality will continue to decline while structures adapt to downturn Amid sliding collateral quality, CLO structures will become more flexible, and credit enhancement will help maintain performance
