Actionable Ideas for Companies and Sponsors

Triple Credit Ratings Enhancing Issuer Access to CLOs

We have seen an uptick in loans being rated by three rating agencies instead of the traditional two agency market requirement, and the new third rating is often from Fitch. The reason is that Fitch has made significant inroads in rating Collateralized Loan Obligations (CLOs), which represent the fastest growing pool of assets investing in leverage loans. CLO vehicles are highly structured funding arrangements whose proceeds are then invested into the loan market, and these vehicles are controlled by various rules regarding credit ratings of the underlying assets. Today approximately half of all CLOs are rated by Moody’s and S&P, and approximately half are rated by Moody’s and Fitch. As a result, issuers seeking to maximize their access to loan demand are seeking ratings from all three agencies, which allows CLOs to deploy more capital.