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Ratings Diversification

Credit risk assessment, pricing, and structuring for syndicated loans

S&P Global Ratings’ Loan & Recovery Ratings

S&P Global Ratings’ loan ratings are widely used in the loan market for credit risk assessment, pricing, and structuring of syndicated loans. A loan rating is the issue-specific rating assigned to a borrower’s syndicated loan. These ratings give the market an important recovery assessment that helps to improve the distribution of syndicated loan new-issuance.

Recovery ratings are used in a variety of ways in the collateralized loan obligation (CLO) market. They are an integral input into S&P Global Ratings’ CLO analysis and ratings. CLO asset managers use recovery ratings as a key consideration in trading decisions as it relates to their portfolio parameters. CLO investors use recovery ratings to monitor the overall expected recovery of their portfolio of leveraged loans. 

S&P Global Ratings has assigned ratings on syndicated loans since 1996 across different sectors and borrower types, including investment-grade, speculative-grade, infrastructure, and project-finance loans. S&P Global Ratings currently rates syndicated loans of more than 2,100 borrowers totaling close to $32 trillion.

S&P Global Ratings: Bank Loan Ratings Revenue

(dollars in millions)

95 190 285 $380 Q4 Q3 Q1 ’10 $94 ’11 $117 ’12 $147 ’13 $208 ’14 $235 ’15 $206 ’16 $262 ’17 $366 ’18 $99 $121 $73 $87 $380 n 1Q n 2Q n 3Q n 4Q Q2

Why Clients Obtain Loan Ratings 

Efficient and transparent market pricing
Increased liquidity in the secondary loan market
Investor base broadened to new classes of lenders
Quick assessment of the effect of a loan rating resulting from contemplated changes to a borrower’s capital structure
Improved terms and efficiencies with vendors 
Third-party, unbiased recovery assessment in a heightened regulatory and credit risk environment

Loan Ratings Process

In the loan ratings process, S&P Global Ratings reviews revolving lines of credit, first-lien term loans, second-lien term loans, and other subordinated debt. Leveraged loan ratings are accompanied by a full recovery rating analysis based on S&P Global Ratings’ ratings scale and methodology.

The table below illustrates how a recovery rating is used to adjust the Issuer Credit Rating, the anchor rating in the loan process, for an issuer with a speculative-grade issuer credit rating.

Recovery RatingRecovery DescriptionNominal RecoveryIssue-Level Rating Notched from Issuer Credit Rating
1+Highest expectation for full recovery100%+3 notches
1Very high recovery90%–100%+2 notches
2Substantial recovery70%–90%+1 notch
3Meaningful recovery50%–70%0 notches
4Average recovery30%–50%0 notches
5Modest recovery10%–30%-1 notch
6Negligible recovery0%–10% -2 notches

Note:  Recovery ratings are capped in certain countries to adjust for reduced creditor recovery prospects in these jurisdictions. The table applies to 23 countries designated as Jurisdiction A by S&P Global Ratings.

S&P Global Ratings’ loan ratings offer an industry-wide recognized gauge of creditworthiness that facilitates increased liquidity in the secondary loan market

Trends in the Leveraged Lending Market

Global Leveraged Loan Issuance Volume Reached Multi-Year Highs in 2017–2018 Amid Rising Interest Rates

Leveraged Loan Issuance Volume Syndicated in U.S. and Europe

(dollars in billions)

n U.S. n Europe 600 400 200 $800 0 400 800 600 800 Global US Europe 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 0 200 400 600 800 U.S. Europe 2018 2000

Note:  Includes institutional and pro rata loan issuance, rated and unrated

Sources:  LCD:  an offering of S&P Global Market Intelligence; S&P Global Fixed Income Research

Annual Maturities for Leveraged Loans Continue Rising Through 2023

Annual Maturities for Leveraged Loans

(dollars in billions)

'19
'20
'21
'22
'23
$32
$92
$148
$256
$294

Notes:  Estimate as of 1/1/2019. Includes term loans that are rated ‘BB+’ or lower by S&P Global Ratings 

Source:  S&P Global Fixed Income Research

Leveraged Loans Represent a Growing Share of U.S. Corporate Issuance

U.S. Leveraged Loans and Speculative-Grade Bonds

(dollars in billions) (years ended December 31)

0 175 350 525 700 Speculative-grade bonds (left axis) 0 175 350 525 700 Leveraged loans (left axis) 525 350 175 $700 80 75 70 85% % Leveraged Loans/Bonds ’18 ’17 ’16 ’15 ’14 ’13 65 70 75 80 85 n Leveraged loans $607 $528 $423 $482 $650 $623n Speculative- grade bonds $276 $242 $209 $188 $237 $142 Leveraged loan % of total 169% 169% 167% 172% 173% 181% Loans/Bonds % of Total

Sources:  Thomson; LCD: an offering of S&P Global Market Intelligence; and
S&P Global Fixed Income Research

Total leveraged loan issuance was more than $700 billion in 2018