S&P prepares to upgrade $5 billion of US CLOs

Late last week Standard and Poor’s announced that it had placed 89 tranches from US CLOs on creditwatch positive. $5 billion of CLO paper will be affected by the action spread out across 24 US CLOs. S&P states that the positive action derives primarily from the improvement in the credit quality of the CLOs' underlying collateral. The rating agency reports that both upgrades to speculative-grade obligors and a steep reduction in defaults have been key factors behind the decision.

While the outlook for CLOs looks bright, S&P also announced that it was placing 21 tranches from CDOs of ABS on creditwatch negative. Seven CDOs, largely backed by RMBS bonds, will be affected.