MOODYS.COM JANUARY 2016 EDITION CONTACTS Managing Editor Algis Remeza Editors Jerry Gluck Aaron Johnson KEY LINKS » CLO & Structured Credit Quick Check » CLO Global Methodology » 2016 Outlook - Global CLOs ABOUT US Moody’s CLO/Structured Credit Group is the leading source for credit ratings and research on collateralized loan obligations (CLOs), and the entire structured credit market. The CLO/Structured Credit Group leverages Moody’s decades of experience in bank loans and high yield as well as our market-leading default studies to produce the most accurate rating methodologies for this asset class. NEWS & ANALYSIS Corporate CLOs, Conduit CMBS and CRE CLOs Share Exposure to Corporates, but Differ in Collateral and Structure We compare and contrast the collateral, structure, performance and issuance of US corporate CLOs, conduit CMBS and commercial real estate CLOs issued since the financial crisis. 3 US CLO 2.0s Spend Little at Struggling Specialty Retailers The vast majority of US CLO 2.0s we rate have little or no exposure to the lowest-rated specialty retailers. 11 PERFORMANCE & SURVEILLANCE Market Pulse 14 CLO Primary Rating Update: January 2016 20 CLO Rating Surveillance Update: January 2016 25 MOODY’S BULLETIN BOARD Events, New Issuance, Satisfaction of Rating Agency Conditions, Announcements, Publications 29 NEWS & ANALYSIS 3 MOODY’S CLO INTEREST 25 JANUARY 2016 Corporate CLOs, Conduit CMBS and CRE CLOs Share Exposure to Corporates, but Differ in Collateral and Structure Originally published on 10 December 2015 Executive Summary In this report, we compare and contrast the collateral, structure, performance and issuance of US corporate collateralized loan obligations (CLOs1 ), conduit commercial mortgage-backed securities (CMBS2 ) and commercial real estate CLOs (CRE CLOs3 ) issued since the financial crisis. The three sectors share exposure to the corporate sector but, in addition to fundamentally different types of collateral backing the underlying loans, the transactions' collateral pools differ in credit quality, tenor and level of diversification. Conduit CMBS and corporate CLO collateral pools have higher credit quality than CRE CLOs. Conduit CMBS pools also have longer tenors whereas corporate CLO pools are more diversified. Structurally, CRE CLOs offset lower credit quality and diversity with higher credit enhancement. In addition, CRE CLOs and corporate CLOs both have performance-based payment diversion features. Historically, CLOs have performed better than conduit CMBS and CRE CLOs, including during the financial crisis, owing to less exposure to CRE. Post-crisis, all three sectors have performed well, but leverage has been increasing for both corporate loans and CRE collateral. Issuance has recovered in all three sectors, but conduit CMBS and CLO issuance may face some head winds in late 2016 when Dodd-Frank Act risk-retention rules becomes effective. Corporate CLO, conduit CMBS and CRE CLO collateral share exposure to corporate sector, otherwise differ significantly Despite sharing exposure to the corporate sector, the underlying collateral of corporate CLOs, conduit CMBS and CRE CLOs differs. Corporate CLOs are primarily backed by first lien senior secured loans issued by speculative-grade companies. Conduit CMBS and CRE CLOs have direct debt interests backed by long- and short-term CRE loans, respectively, and as such are dependent in part on the financial health of corporate tenants. The collateral of the three sectors, however, differs significantly in terms of credit quality, coupon, weighted average life and level of diversification. Conduit CMBS have average credit quality in the Ba- to B-range compared to corporate CLO portfolios in the B-range. CRE CLO portfolios have slightly lower credit quality, comparable to the low B- to Caa1-range. Conduit CMBS portfolios have mostly fixed-rate assets, and a longer life. In contrast, corporate CLO and CRE portfolios have mostly floating-rate assets with shorter lives. Corporate CLOs have the most diversified portfolios, followed by conduit CMBS and CRE CLOs. Exhibit 1 shows some of the key collateral attributes for transactions we rated between 1 January 2010 and 31 March 2015 (for corporate CLOs and conduit CMBS) or 31 May 2015 (for CRE CLOs) (together, the “reference period”). There are significant differences across individual transactions and vintages. 1 CLO refers to US CLOs backed by broadly syndicated loans. 2 CMBS refers to US CRE transactions backed by conduit/fusion loans. 3 CRE CLO refers only to US CRE transactions backed by transitional commercial mortgage loans. Shana Sethi VP - Senior Analyst +1.212.553.7298 shana.sethi@moodys.com Simran Sangari Analyst +1.212.553.1053 simran.sangari@moodys.com Romina Padhi VP- Senior Analyst +1.212.553.3841 romina.padhi@moodys.com This publication does not announce a credit ra