���������ֳ�

���������ֳ� has a Stable outlook for U.S. leveraged finance, inclusive of both the U.S. institutional leveraged loan (LL) market and the U.S. high-yield bond (HY) market. This considers a weighted average of outlooks among our sector teams, which are underpinned by the expectation that operating performance will stabilize or improve in 2021 across all industries. It is offset by our expectation of a prolonged, challenging environment for weaker companies due to the depth of the pandemic’s effect on the economy and its uncertain duration. Our three-year 2020–2022 cumulative U.S. default rate forecasts for LL and HY are 17%–20% and 15%–18%, respectively. This is comparable in scale with the three-year cumulative default rate of 15% for LL and 22% for HY bonds from 2008 to 2010 as a result of the Great Recession. ���������ֳ� has assigned a Negative rating outlook for U.S. leveraged finance, based on a large margin of issuer ratings and Credit Opinions in our portfolio currently on Negative Outlook (34.4%) versus those on Positive (3.1%). In response to the pandemic, the downward rating migration was significant and swift. The sectors with the highest levels of negative rating actions in ���������ֳ�’s portfolio were airlines, lodging & leisure, gaming, non-food retail and auto supplies. Looking at the full U.S. LL market, the percentage of first-lien loans with an average rating at ‘CCC+’ or lower has doubled to approximately 10% compared with YE 2019. Furthermore, 35% of ‘B–’ issuers in ���������ֳ�’s portfolio are on Negative Outlook, which exposes it to meaningful ratings downside in the event the economic impact of the pandemic is significantly worse than expected. The long-run average rate at which these convert to downgrades is between 50% and 60%, although a number of factors suggest that it may be lower in current conditions.