Commentary

Morningstar DBRS Credit Estimate Snapshot: Q2 2024 Financial Metrics Deteriorate Modestly

Structured Credit

Summary

In Q2 2024, we issued and refreshed a total of 286 Credit Estimates (CEs) across 279 borrowers for 26 lenders including managers of collateralized loan obligations (CLO) and private credit funds. Here are some of our key observations from Q2 2024:

-- We issued 65 CEs for new borrowers, down from 92 in the first quarter this year. We performed refreshes for 214 existing CE borrowers, down slightly from the 219 refreshed in the first quarter. Newly issued CEs accounted for 23% of the total volume, and the remaining 77% consisted of refreshes.
-- The overall credit quality of new borrowers is slightly better relative to the refreshed borrowers. A higher portion of new borrowers have single-B equivalent CEs (49%) versus refreshed borrowers (38%). Also, the portion of newly assigned CEs in the weaker CCC-range equivalent category was lower compared with refreshes.
-- Higher leverage and lower interest coverage were seen across all sectors, and the consumer cyclical sector had the biggest decline in revenue growth.

"We expect new issuance volume to pick up in the third quarter as total new corporate loan borrowings in the pipeline from July and August have already surpassed Q2," said Siyun Chen, Vice President of U.S. Structured Credit Ratings at Morningstar DBRS.

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