OREANDA-NEWS. Improving oil & gas loan prices helped to mitigate the impact from default and 'CCC' haircuts in U. S. CLOs with exposure to the sector, according to Fitch Ratings in its latest U. S. CLO index.

Average senior overcollateralization ratio and par gain declined at a slower pace than in the previous quarter while exposure to defaulted issuers decreased to 0.4% from 1.1% of the index portfolio. The decline in defaulted exposure resulted from several previously defaulted borrowers emerging from bankruptcy. Also contributing to the decline was the reversal of defaulted classification of Murray Energy and the addition of newer CLOs with less seasoned and healthier portfolios.

At the same time, U. S. CLO exposure to Fitch's Loans of Concern inched up to 6.4% from 4.9%. This could be a harbinger that the slowdown in declines of some performance metrics maybe a short-lived trend, especially if loan prices retreat from the recent gains. Fitch revised its Loans of Concern methodology in 2Q, with the aforementioned 1Q and 2Q exposures presented on a restated basis. On the other hand, lower loan prices will provide CLO managers of CLOs still in their reinvestment period with opportunities to build portfolio par.