OREANDA-NEWS. The number of defaults and impacted CLOs increased in the second quarter, with 19 of 142 CLOs in the index reporting defaults at the end of Q2, according to Fitch Ratings. Five new defaults were reported in the second quarter, which includes two distressed debt restructuring events. One of the defaulted issuers, Sabine Oil & Gas Corporation was held by eight CLOs, but the exposure w was largest, at or near 1% the portfolio notional, in only two of the affected transactions. One CLO in the index held a loan to Patriot Coal, at 0.6% of the portfolio notional amount.

While the remaining new defaults were outside of the commodity related sectors, issuers from Energy, Oil &Gas and Metals & Mining remain the most vulnerable to an ongoing downturn in these sectors. As mentioned in Fitch's latest U.S. CLO Index report, a number of coal producers held in CLOs are distressed and may be nearing a default event.

However, the exposure to these sectors is contained at the aggregate and deal-level. The index's overall exposure stood at 4.3% for Energy, Oil &Gas and 1.7% for Metals & Mining. At the deal level, Energy holdings exceeded 10% of the portfolio notional amounts in six CLOs, and only two CLOs held more than five percent in Metals & Mining companies at the end of Q2. Importantly, as noted in Fitch's previous Index quarterly reports, some Energy subsectors are more insulated from the slide in energy prices.

The majority of CLOs in the Index remain in their reinvestment phase, which provides more latitude for CLO managers to offset par losses from defaults and distressed sales with purchases at a discount. The average par gain across the 142 CLOs in the Index declined marginally to 0.34% from 0.37% at the end of the previous quarter. In 12 CLOs, portfolio par, after applying haircuts to the defaulted assets, is currently below a par target, but the shortfall is only 0.2% of par target on average.

The initial portfolio construction and ongoing reinvestment keep portfolios well diversified across obligors, with a median obligor count of 191, resulting in only one CLO reporting aggregate defaults to date slightly over 1%.

Fitch's U.S. CLO Index is enhanced by its Excel-based Tracker Data File, which allows investors to drill down into the data presented in the Index Report. Performance metrics are normalized across transactions, allowing like-for-like comparisons across deals and managers. The Tracker includes sector-level information such as rating transitions, most referenced issuers and issuer overlap matrices; deal dashboards that present key performance statistics and 12-month trends across transactions; and individual transaction pages that present detailed deal characteristics, historical performance data and Fitch PCM model results.

The Index added 19 new CLOs in 2Q'15 and removed one CLO that is no longer rated by Fitch.