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January 27, 2017  

S&P Seeks Public Face for CLO Comeback

S&P is seeking an experienced collateralized loan obligation professional to help it regain lost market share in the sector.

Sources said S&P officials have interviewed at least a half-dozen candidates for a key business-development position under managing director Mary Beth Burnett, who oversees 14 sales specialists across a range of businesses. The eventual winner would assume the duties of David Kreidler, who left his job as head of business development for the agency’s U.S. CLO business in December to join Fitch.

Indications are that S&P was talking to prospective recruits prior to Kreidler’s exit, but that his move added urgency to the search.

Kreidler arrived in October 2013, a few months after S&P increased the credit protections needed for new deals to earn triple-A grades. That switch led a number of influential issuers to boycott the agency, including Apollo Global, Ares Management, GoldenTree Asset Management, Barings, Credit Suisse Asset Management, GSO Blackstone, Invesco and Octagon Credit.

Their stance was rooted in a longstanding disagreement over how S&P calculates the amounts of principal it expects issuers to collect on defaulted collateral loans — with some managers complaining of overly cautious assumptions that prevented them from buying certain credits.

In August 2014, S&P tweaked its approach to include friendlier recovery figures. That adjustment, characterized as part of a push to offer more details on the agency’s corporate-loan grades, saw some of the issuers return.

But S&P’s market share never fully recovered. In 2013, the agency’s ratings appeared on 92.4% of CLOs issued worldwide, versus 47.7% for Moody’s and 45.9% for Fitch. It immediately sank to third place in 2014 with a 39.3% share in 2014, behind Moody’s (94.6%) and Fitch (59.7%). The next year brought more of the same, with S&P’s 39.3% share again placing it behind Moody’s (94.6%) and Fitch (59.7%).

Some signs of progress emerged in 2016, however, as S&P was the only “big-three” rating agency to increase its market share. Its 45.9% showing still was well behind first-place Moody’s (92.4%), but left it only a hair short of number-two Fitch (47.7%).

The new business-development specialist would be tasked with continuing those gains. Doing so would introduce something of a balancing act in which S&P would have to demonstrate to the SEC and other regulators that it isn’t lowering its standards in search of business. “It’s a Catch-22 with any of the rating agencies,” one source said. “Technically, they are a business and want to market themselves. But at the same time, they are supposed to be providing a public good and are supposed to be impartial and independent.”

S&P’s gains last year were due in part to an increase in business from Europe, where the agency supplanted Fitch as the number-two player behind Moody’s. Meanwhile, Fitch’s head of business development for CLOs in Europe, Andrew Cormack, stepped down at yearend.