S&P warns of big downgrades on European mid-market CLOs

Standard and Poor’s has today issued a request for comment for proposed changes to the way it rates European SME CLOs. The proposals are likely to have a negative impact on outstanding European SME CLOs. The rating agency notes that the amendments could result in downgrades by an average of four notches.

Senior CLO tranches will be most affected. Based on a sample of these types of deals that S&P rates, it is estimated that tranches currently rated AAA and AA will be downgraded on average by 5.4 and 5.7  notches respectively.

Market participants have until 24 February to respond to these proposals.