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U.S. and Canadian Utilities Lead Potential Fallen Angels

This year's global tally of fallen angels (issuers downgraded to speculative grade from investment grade by S&P Global Ratings) increased to five as of April 8, all from the U.S.

Utilities Dominate Potential Fallen Angels

  • The utilities sector currently leads potential fallen angels (issuers rated 'BBB-' with negative outlooks or ratings on CreditWatch with negative implications) with 10 out of 46 total, and 70% are from either the U.S. or Canada. Negative bias (the proportion of ratings with negative outlooks or on CreditWatch with negative implications) among utilities has risen overall, especially in the 'BBB' rating category.
  • At 'BBB', the median rating of U.S. utilities has recently fallen one notch, commensurate with the sector's median globally and just one notch above the divide between investment grade ('BBB-' or higher) and speculative grade ('BB+' or lower). Globally, only the insurance and utility sectors have median ratings in the investment-grade category (see "Global Corporate Credit Quality Stands On Shaky Ground," April 9, 2019).
  • Downgrades in the utilities sector outpaced upgrades in 2018 and reached their highest since 2009 (see chart 3).
  • Bond issuance for U.S. utilities has declined since 2016, particularly for issuers rated 'BBB' and below (see chart 4), largely due to steps taken by North American utilities to preserve their credit quality by issuing common equity and hybrid securities and selling assets to support their financial measures.
  • The utilities sector has historically been stable, and S&P Global Ratings believes this trend will continue into 2019, given the expectation for no interest rate hikes from the Federal Reserve and the sector's limited refinancing needs. However, the risk for downgrades at the 'BBB' rating level remains, as the lingering effects of tax reform and debt-financed mergers and acquisitions have eroded the cushion that existed in financial metrics, leaving relatively little room for disappointments (see "Industry Top Trends 2019: North America Regulated Utilities," Nov. 8, 2018).

Table 1  |  Download Table

The U.S. Leads Utility Potential Fallen Angels With Four, But Canadian Utilities Are Not Far Behind
Entity Country Outlook or CreditWatch Rating Debt amount (mil. $)

Adani Transmission Ltd.

India Watch Neg BBB- 1,143

AltaGas Ltd.

Canada Negative BBB- 2,432

Innergex Renewable Energy Inc.

Canada Negative BBB- 119

PT Perusahaan Gas Negara Tbk.

Indonesia Negative BBB- 1,975

Puget Energy Inc.

U.S. Negative BBB- 5,628

Ruby Pipeline LLC

U.S. Negative BBB- 825

SEMCO Energy Inc.

U.S. Negative BBB- 300

Societa Metropolitana Acque Torino SpA

Italy Negative BBB- 152

TransAlta Corp.

Canada Negative BBB- 2,200

WGL Holdings Inc.

U.S. Negative BBB- 1,851
Data as of April 8, 2019. Source: S&P Global Fixed Income Research.

Key Trends Among Fallen Angels

  • All five of this year's fallen angels have been from the U.S. The homebuilders and real estate sector and utilities lead the way with two each.
  • The negative bias for investment-grade issuers globally (excluding the U.S.) has decreased significantly as compared with the U.S. region's investment-grade negative bias. The proportion of U.S.-based fallen angels is expected to increase in the short term.

Table 2  |  Download Table

Macquarie Infrastructure Corp. And Senior Housing Properties Trust Are The Newest Fallen Angels
Date Issuer To From Sector Country Rated debt amount (mil. $)

Senior Housing Properties Trust

BB+ BBB- Homebuilders/real estate companies U.S. 2,250

Macquarie Infrastructure Corp.

BB+ BBB- Utilities U.S. 3,854

Magellan Health Inc.

BB+ BBB- Insurance U.S. 400

Washington Prime Group Inc.

BB BBB- Homebuilders/real estate companies U.S. 1,893

PG&E Corp.

B BBB- Utilities U.S. 17,525
Data as of April 8, 2019. Source: S&P Global Fixed Income Research.