M Global FoundationGlobal Credit StrategyPlaying 'CCC'-atch UpDispersion, large capital structures, and a sizeable distressed universe make gauging value in CCCs challenging at the index level. However, we see opportunities in the details. Our deep dive into CCCs.Morgan Stanley & Co. LLCVishwas PatkarStrategist Vishwas.Patkar@morganstanley.com +1 212 761-8041 Joyce JiangStrategist Joyce.Jiang@morganstanley.com +1 212 761-0165 Anlin G ZhangStrategist Anlin.Zhang@morganstanley.com +1 212 761-1542 Karen ChenStrategist Karen.Chen@morganstanley.com +1 212 761-1199 Ian RobinsonStrategist Ian.Robinson@morganstanley.com +1 212 761-3117 Morgan Stanley & Co. International plc+Aron BeckerStrategist Aron.Becker@morganstanley.com +44 20 7677-0754 Ellie DannStrategist Ellie.Dann@morganstanley.com +44 20 7425-2599 Exhibit 1:Spreads across ratings are at YE 2021 tights, except CCCs and Loans95bp46bp81bp117bp 334bp 209bp312bp822bp457bp311bp 450bp1,294bp0%10%20%30%40%50%60%70%80%90%100%AllAAABBBAllBBBCCCAllBBBCCCUS IGUS HYUS LoansPost-GFC Ranges - US Corporate Credit by RatingSource: Bloomberg, PitchBook LCD, Morgan Stanley ResearchMorgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision.For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report.+= Analysts employed by non-U.S. affiliates are not registered with FINRA, may not be associated persons of the member and may not be subject to FINRA restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Key TakeawaysCCCs continue to screen attractive vs. the rest of credit, with spreads at or above long-term averages. We see better risk-reward in CCCs than BBs/Bs.In HY CCC, we see opportunities in the "mid-beta" cohort, while the tightest subset looks rich, and the tail is concentrated in names with secular challenges. We prefer unsecured bonds from higher-rated issuers that have cheapened vs. secured bonds from weaker names.We see better/broader upside in CCC Loans, which are skewed to higher notches. Valuations are cheaper; Fed cuts should help ease funding and cash flow stresses.In Europe, CCC valuations are cheaper, but the opportunity set is more limited. We recommend AT1s and CLO mezz as liquid alternatives for yield pickup.In derivatives, we like pairing longs in CDX HY 41 equity vs. index to position for CCC compression.February 7, 2024 07:54 PM GMTM Global Foundation2IntroductionRisk assets continue to embrace a soft landing, bolstered by strong growth data and continued evidence of disinflation. Credit spreads bri...
