穆迪-全球-利率市场-抵押贷款利率-20180122-23页_2mb

CLO Interest Summary

Core Content

This report provides an analysis of the credit implications of the US tax reform legislation, particularly focusing on its impact on the structured credit market, including Collateralized Loan Obligations (CLOs), corporate debt, and public finance. It also includes an update on the Refunding Indicator, which tracks refinancing risk for speculative-grade issuers, and a market pulse on CLO performance metrics for October 2017.

Main Points

US Tax Reform Impact

• Corporate Tax Cut: The significant reduction in the corporate tax rate from 35% to 21% is expected to boost corporate cash flow, which is a broad credit positive.
• Sector-Specific Effects:
  • US Sovereign: Credit negative due to a $1.5 trillion deficit over 10 years, increasing federal debt burden.
  • Non-Financial Companies: The tax cut and full upfront deductibility of capital spending will benefit most investment-grade companies, while limits on interest deductibility will negatively affect highly leveraged firms.
  • Utilities: Credit negative for investor-owned utilities due to reduced tax differences and cash flow impacts.
  • Financial Institutions & Insurance: Net credit positive for most, with improved profitability and reduced tax liabilities, though some provisions may negatively affect certain firms.
  • Public Finance: Negative for municipal bonds, non-profit hospitals, and private colleges due to reduced deductions and increased anti-tax sentiment.
  • Structured Finance: Generally credit positive, but some transactions may be negatively affected due to reduced debt service capacity and home price impacts.

Economic Impact

• The tax bill is expected to have a modest impact on economic growth (around 2%–2.5% in 2018–19), driven mainly by higher household consumption.
• Inflation is likely to strengthen over time, leading to potential rate hikes by the Federal Reserve.
• The 10-year Treasury yield is projected to rise gradually to around 3% by the end of 2018, and possibly to slightly above 4% by 2022.

Housing Market Effects

• The reduction in mortgage interest and property tax deductions could slow house price growth in high-tax areas.
• The repeal of the individual mandate may lead to increased insurance costs and reduced financial stability for some consumers, increasing default risk.
• Post-crisis RMBS transactions are more exposed to these negative effects compared to traditional RMBS.

Refunding Indicator

• Three-Year Refunding Indicator: Rose to 3.9x in December 2017, up 16% year-over-year, showing continued improvement in refunding risk.
• Despite progress, refunding risk remains historically high, with the indicator still 37% below its long-term average.
• One-Year Refunding Indicator: Increased to 8.5x in December 2017, indicating elevated short-term refinancing risk.

Key Information

• Refunding Risk: Improved in 2017, but remains high for both three-year and one-year indicators.
• CLO Performance:
  • WARF (Weighted Average Rating Factor): Improved for US and European CLO 2.0s, with notable upgrades in corporate ratings.
  • Defaults: Increased significantly for US CLOs, especially CLO 1.0s, due to amortization and defaults like Concordia International Corp and Toys 'R' Us.
  • OC (Over-Collateralization): Declined for both US and European CLO 2.0s due to defaults and asset sales.
  • Caa Holdings: Declined for US CLOs, while increased slightly for European CLOs.
• Market Trends: High-yield bond issuance in 2017 contributed to the Refunding Indicator's growth, but the overall market remains vulnerable to future refinancing pressures.

Conclusion

The US tax reform legislation has a mixed impact on the credit market, with credit positives for most sectors but also credit negatives for certain industries and transactions. The structured credit market, particularly CLOs, is influenced by the tax changes, with the CLO market showing both improvements and risks depending on the underlying assets and sectors involved. Refunding risk remains elevated, and the housing market is expected to face challenges due to the changes in tax deductions.