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COMMENTS

Credit Trends: 'BBB' Pulse: The Potential Fallen Angels Total Starts To Decline From Record Highs

COMMENTS

Default, Transition, and Recovery: Oil And Gas Leads 2020 Global Corporate Defaults, Reflecting Sector Challenges

COMMENTS

Credit Trends: U.S. Corporate Bond Yields As Of Nov. 18, 2020

COMMENTS

Credit Trends: U.S. Corporate Bond Yields As Of Nov. 11, 2020

COMMENTS

Default, Transition, and Recovery: The 2020 Corporate Default Tally Jumps To 206


Credit Trends: 'BBB' Pulse: The Potential Fallen Angels Total Starts To Decline From Record Highs

The count of fallen angels (issuers downgraded to speculative grade from investment grade) increased by six in July to a total of 40 this year so far, representing $340 billion in rated debt. The six new fallen angels since our last report are:

  • Brazil-based thermoplastic resin manufacturer Braskem S.A.,
  • U.A.E.-based real estate companies DIFC Investments Ltd.,
  • Emaar Properties PJSC,
  • China-based mining company Zijin Mining Group Co. Ltd.,
  • German automotive systems manufacturer IHO Verwaltungs GmbH, and
  • French automotive systems manufacturer Valeo S.A.

As a result, we've removed these issuers from the list of potential fallen angels. (Potential fallen angels are issuers rated 'BBB-' with negative outlooks or ratings on CreditWatch with negative implications.) In addition, we've added three issuers to the list and removed another three, bringing the tally to 120, below its record high of 126 in May and June. Of the other three removals:

Chart 1

image

The tally of fallen angels compared with the total rated investment-grade issuers continued to rise in July, reaching 2.5% from just 1.0% in January. This is significantly above the 10-year average. In contrast, the number of rising stars (issuers upgraded to investment grade from speculative grade) remained at two. There was also only one addition to the list of potential rising stars (issuers rated 'BB+' with positive outlooks or ratings on CreditWatch positive), bringing the total to nine. As such, 2020 is still on track to set a record low for the number of rising stars (see chart 2).

Chart 2

image

With Two Additions This Month, The Auto Sector Joins Transportation To Lead Fallen Angels

The sector distribution of fallen angels through 2020 continues to show the broad-based hit to the economy from COVID-19 and the oil price crisis (see chart 3). Due to plummeting auto sales, notably in Europe, where the sector was already ailing previous to the spread of the virus, two more European auto issuers lost their investment-grade status in July. The real estate sector also had two new fallen angels in July, both from the United Arab Emirates, where the COVD-19 pandemic appears to have exacerbated supply-demand imbalances in real estate. Furthermore, as a result of the crisis, the government of Dubai might have less ability to provide fiscal support to its related entities (see "Three Dubai-Based Real Estate Companies Downgraded On Increased Economic Pressures Stemming From Spread Of COVID-19").

Chart 3

image

The Decline In Potential Fallen Angels Points To Gradual Stabilization

The count of potential fallen angels dropped to 120 in July, breaking the trend of increases over the past six months (see chart 4). However, the tally remains far above its long-term average.

Chart 4

image

Short-Term Risk Declines While Long-Term Risk Continues To Loom

In addition to the declining number of potential fallen angels, the proportion of potential fallen angels on CreditWatch with negative implications fell to 13% from 16% last month, and it's now half of its five-year high of 27% in April (see chart 5). This smaller proportion points to a less immediate credit risk and, potentially, a slower pace of new fallen angels in the near term. The timeline of a potential downgrade is 90 days for a negative CreditWatch, compared with six to 24 months for a negative outlook (see "Guide To Credit Rating Essentials, What Are They And How Do They Work?").

Chart 5

image

Leisure And Lodging Continues To Have The Highest Immediate Credit Risk

Consistent with the trends highlighted in our previous publications, financial institutions continue to lead the count of potential fallen angels, with 21, though these are a fairly small portion of all rated financial institutions globally. Additionally, only 5% of these have ratings on CreditWatch negative, compared with 13% for all sectors. Two of the three additions from our last report were financial institutions, Peru-based Intercorp Financial Services Inc. and New York-based Argo Group International Holdings Ltd. The other was Japanese auto manufacturer Nissan Motor Co. Ltd. All new additions have negative rating outlooks.

Media and entertainment, particularly lodging and leisure, remains the sector with the highest share of potential fallen angels on CreditWatch negative--43% out of 14 entities on the list. Moreover, 63% of potential fallen angels' debt value in media and entertainment is on CreditWatch negative, compared with 10.5% for the full list of potential fallen angels. Despite the high immediate credit risk, the sector has seen only two new fallen angels this year, neither of which was added in July.

Chart 6

image

Chart 7

image

Rising Stars And Potential Rising Stars Could See Record Lows This Year

There were no additions to the list of rising stars in July, keeping the total count for 2020 at two. Moreover, there was only one addition to potential rising stars, bringing the total to nine. At this pace, both rising stars and potential rising stars are on track to have a record-low tally this year. That leads to a much wider gap between potential fallen angels and rising stars than during the 2008-2009 financial crisis.

Table 1

Six Fallen Angels In July Take Overall Count For 2020 To 40
Date Issuer To From Sector/subsector Country Rated debt affected (mil. $)
7/31/2020

Valeo S.A.

BB+ BBB- Automotive France 4,108
7/20/2020

IHO Verwaltungs GmbH

BB+ BBB- Automotive Germany 8,608
7/14/2020

Zijin Mining Group Co. Ltd.

BB+ BBB- Metals, mining, and steel China 350
7/9/2020

Emaar Properties PJSC

BB+ BBB- Homebuilders/real estate companies U.A.E. 3,250
7/9/2020

DIFC Investments Ltd.

BB+ BBB- Homebuilders/real estate companies U.A.E. 1,400
7/8/2020

Braskem S.A.

BB+ BBB- Chemicals, packaging, and environmental services Brazil 4,150
6/26/2020

Axis Bank Ltd.

BB+ BBB- Financial institutions India 1,095
6/23/2020

Carnival Corp.

BB- BBB- Media and entertainment Panama 9,265
6/15/2020

Tech Data Corp.

BB BBB- High technology U.S. 3,750
6/15/2020

Embraer S.A.

BB+ BBB- Aerospace and defense Brazil 500
5/28/2020

Rolls-Royce PLC (Rolls-Royce Holdings PLC)

BB BBB- Aerospace and defense U.K. 3,996
5/26/2020

Multibank Inc. y Subsidiarias

BB+ BBB Financial institutions Panama 300
5/22/2020

Trinity Industries Inc.

BB+ BBB- Transportation U.S. 400
5/20/2020

International Consolidated Airlines Group, S.A.

BB BBB- Transportation Spain 1,086
5/20/2020

Deutsche Lufthansa AG

BB+ BBB- Transportation Germany 1,086
5/20/2020

British Airways PLC

BB BBB- Transportation U.K. 806
4/20/2020

Hillenbrand Inc.

BB+ BBB- Capital goods U.S. 1,250
4/10/2020

Rockies Express Pipeline LLC

BB+ BBB- Midstream U.S. 2,050
4/9/2020

Renault S.A.

BB+ BBB- Automotive France 24,979
4/3/2020

ZF Friedrichshafen AG

BB+ BBB- Automotive Germany 7,027
4/2/2020

Service Properties Trust

BB+ BBB- Homebuilders/real estate companies U.S. 5,350
4/2/2020

Royal Caribbean Cruises Ltd.

BB BBB- Media and entertainment U.S. 1,750
3/27/2020

Continental Resources Inc.

BB+ BBB- Oil and gas U.S. 5,200
3/27/2020

Esselunga SpA

BB+ BBB- Retail/restaurants Italy 1,105
3/27/2020

Trinidad Generation Unlimited

BB+ BBB- Utilities Trinidad and Tobago 600
3/26/2020

Apache Corp.

BB+ BBB Oil and gas U.S. 11,080
3/26/2020

Western Midstream Operating LP (Occidental Petroleum Corp.)

BB+ BBB- Midstream U.S. 8,120
3/26/2020

Marks & Spencer PLC (Marks & Spencer Group PLC)

BB+ BBB- Retail/restaurants U.K. 2,068
3/26/2020

Patterson-UTI Energy, Inc.

BB+ BBB Oil and gas U.S. 875
3/25/2020

Ford Motor Co.

BB+ BBB- Automotive U.S. 113,862
3/25/2020

Occidental Petroleum Corp.

BB+ BBB Oil and gas U.S. 43,913
3/24/2020

Delta Air Lines Inc.

BB BBB- Transportation U.S. 4,550
3/23/2020

Immobiliare Grande Distribuzione SIIQ S.p.A.

BB+ BBB- Homebuilders/real estate companies Italy 855
2/24/2020

Ruby Pipeline LLC

BB BBB- Midstream U.S. 825
2/18/2020

Macy's Inc.

BB+ BBB- Retail/restaurants U.S. 7,149
2/14/2020

Kraft Heinz Co. (The)

BB+ BBB- Consumer products U.S. 31,539
2/4/2020

EQM Midstream Partners LP

BB+ BBB- Utilities U.S. 3,500
2/3/2020

EQT Corp.

BB+ BBB- Utilities U.S. 4,945
1/31/2020

Spirit AeroSystems Inc.

BB BBB- Aerospace and defense U.S. 1,900
1/13/2020

Atlantia SpA

BB- BBB- Utilities Italy 16,297
Data as of July 31, 2020. Source: S&P Global Ratings Research. Fallen angels are defined as investment-grade issuers currently with bonds outstanding that have been downgraded into speculative-grade (i.e. from BBB- or above, to BB+ or below). Includes all rated issuers with valid outstanding debt at the time of the rating action. Valid debt includes issuer level debt (both secured and unsecured), bank loans, subordinated debt, medium term notes, preferred stock, convertible debt and drawdowns under MTN programs and excludes commercial paper programs, shelf registrations, certificates of deposit, and debt rated on a confidential basis.

Table 2

Potential Fallen Angels Count Dropped To 120
'BBB-' rated issuers with negative outlooks or on Creditwatch with negative implications
Subsector Issuer CreditWatch negative/negative outlook New to the list this month Country Debt amount (mil. $)
Financial institutions

AIB Group PLC

Negative Ireland 6,019
Utilities

Abertis Infraestructuras S.A.

Negative Spain 17,741
Media and entertainment

Accor S.A.

Watch Neg France 5,463
Financial institutions

Ally Financial Inc.

Negative U.S. 18,795
Chemicals, packaging, and environmental services

Alpek, S.A.B. de C.V.

Negative Mexico 1,450
Media and entertainment

Amadeus IT Group S.A.

Negative Spain 3,827
Insurance

American Equity Investment Life Holding Co.

Negative U.S. 900
Metals, mining, and steel

ArcelorMittal

Negative Luxembourg 13,213
Financial institutions

Argo Group International Holdings Ltd.

Negative Yes U.S. 275
Capital goods

Ashtead Group PLC

Negative U.K. 3,000
Retail/restaurants

Auchan Holding

Negative France 8,963
Automotive

AutoNation Inc.

Negative U.S. 2,000
Transportation

Aviation Capital Group LLC

Negative U.S. 5,028
Transportation

Avolon Holdings Ltd.

Negative Cayman Islands 10,649
Financial institutions

Bank of Ireland Group PLC

Negative Ireland 7,355
Homebuilders/real estate companies

Beijing Capital Group Co. Ltd.

Negative China 500
Telecommunications

Bharti Airtel Ltd.

Negative India 4,388
Financial institutions

BrightSphere Investment Group Inc.

Negative U.S. 400
Homebuilders/real estate companies

Brookfield Property REIT Inc.

Negative U.S. 13,700
Media and entertainment

Brunswick Corp.

Watch Neg U.S. 832
Financial institutions

CIT Bank N.A.

Negative U.S. 550
Metals, mining, and steel

Cameco Corp.

Negative Canada 749
Retail/restaurants

Capri Holdings Ltd.

Negative British Virgin Islands 450
Metals, mining, and steel

Carpenter Technology Corp.

Negative U.S. 850
Forest products and building materials

Celulosa Arauco y Constitucion, S.A. (ARAUCO)

Negative Chile 3,900
Oil and gas

Cenovus Energy Inc.

Negative Canada 5,824
Homebuilders/real estate companies

China Jinmao Holdings Group Ltd.

Negative Hong Kong 1,729
Media and entertainment

Choice Hotels International Inc.

Negative U.S. 800
Oil and gas

Cimarex Energy Co.

Negative U.S. 2,000
Homebuilders/real estate companies

Citycon Oyj

Negative Finland 2,289
Consumer products

Conagra Brands Inc.

Negative U.S. 13,291
Retail/restaurants

Darden Restaurants Inc.

Negative U.S. 1,250
Oil and gas

Devon Energy Corp.

Negative U.S. 7,550
Oil and gas

Diamondback Energy Inc

Negative U.S. 6,935
Financial institutions

Discover Financial Services

Negative U.S. 11,939
Homebuilders/real estate companies

EPR Properties

Negative U.S. 3,486
Forest products and building materials

Eagle Materials Inc.

Watch Neg U.S. 350
Oil and gas

Ecopetrol S.A.

Negative Colombia 9,850
Utilities

Empresa Nacional del Petroleo

Negative Chile 2,980
Merchant Power

Enable Midstream Partners LP

Negative U.S. 1,850
Midstream

Energy Transfer LP

Negative U.S. 48,702
Media and entertainment

Expedia Group Inc.,

Negative U.S. 7,765
Financial institutions

FCE Bank PLC

Watch Neg U.K. 9,664
Financial institutions

Financiera de Desarrollo Territorial S.A. FINDETER

Negative Colombia 500
Transportation

FirstGroup PLC

Negative U.K. 1,134
Capital goods

Flowserve Corp.

Negative U.S. 1,389
Capital goods

Fluor Corp.

Negative U.S. 1,689
Automotive

GKN Holdings Limited

Negative U.K. 972
Metals, mining, and steel

Gerdau S.A.

Negative Brazil 3,150
Utilities

Grupo Energia Bogota S.A.E.S.P.

Negative Colombia 1,070
Diversified

Grupo de Inversiones Suramericana S.A.

Negative Colombia 850
Oil and gas

Hess Corp.

Negative U.S. 7,600
Media and entertainment

Host Hotels & Resorts Inc.

Watch Neg U.S. 4,450
Aerospace and defense

Howmet Aerospace Inc

Negative U.S. 7,182
Media and entertainment

Hyatt Hotels Corp.

Watch Neg U.S. 2,200
Financial institutions

ICICI Bank Ltd.

Negative India 3,698
Media and entertainment

ITV PLC

Negative U.K. 2,002
Utilities

Indigo Group S.A.

Negative France 2,326
Merchant Power

Innergex Renewable Energy Inc.

Negative Canada 120
Midstream

Inter Pipeline Ltd.

Negative Canada 3,726
Media and entertainment

InterContinental Hotels Group PLC

Negative U.K. 1,950
Financial institutions

Intercorp Financial Services Inc.

Negative Yes Peru 600
Retail/restaurants

Kingfisher PLC

Watch Neg U.K. 59
Retail/restaurants

Kohl's Corp.

Negative U.S. 3,200
Media and entertainment

Las Vegas Sands Corp.

Watch Neg U.S. 9,500
Automotive

Lear Corp.

Negative U.S. 2,300
Oil and gas

Marathon Oil Corp.

Negative U.S. 5,252
Financial institutions

Marex Spectron Group Ltd

Negative U.K. 6
Media and entertainment

Marriott International Inc.

Watch Neg U.S. 10,937
Retail/restaurants

Metro AG

Negative Germany 1,972
Metals, mining, and steel

Minsur S.A.

Watch Neg Peru 450
Consumer products

Molson Coors Beverage Company

Negative U.S. 7,717
Chemicals, packaging, and environmental services

Mosaic Co. (The)

Negative U.S. 4,870
Financial institutions

Nelnet Inc.

Negative U.S. 200
Consumer products

Next PLC

Watch Neg U.K. 1,459
Automotive

Nexteer Automotive Group Ltd.

Negative Cayman Islands 250
Automotive

Nissan Motor Co. Ltd.

Negative Yes Japan 7,043
Retail/restaurants

Nordstrom Inc.

Negative U.S. 3,566
Financial institutions

Nova Ljubljanska Banka D.D.

Negative Slovenia 283
Consumer products

Ocean Spray Cranberries Inc.

Negative U.S. 150
Financial institutions

Ohio National Financial Services Inc.

Negative U.S. 975
Oil and gas

Ovintiv Inc.

Negative U.S. 6,450
Utilities

PT Pelabuhan Indonesia III (Persero)

Negative Indonesia 500
Utilities

PT Perusahaan Gas Negara Tbk.

Watch Neg Indonesia 1,975
Consumer products

PVH Corp.

Negative U.S. 3,507
Financial institutions

Permanent TSB PLC

Negative Ireland 8
Automotive

Peugeot S.A.

Negative France 17,723
Forest products and building materials

PotlatchDeltic Corp.

Negative U.S. 1,752
Financial institutions

Prospect Capital Corp.

Negative U.S. 5,576
Utilities

Puget Energy Inc.

Watch Neg U.S. 6,728
High technology

Rakuten Inc.,

Negative Japan 800
Sovereign

Republic of Colombia

Negative Colombia 27,956
Media and entertainment

Resorts World Las Vegas LLC

Negative U.S. 1,400
Homebuilders/real estate companies

Retail Opportunity Investments Corp.

Negative U.S. 500
Sovereign

Romania

Negative Romania 42,987
Media and entertainment

SKYCITY Entertainment Group Ltd.

Negative New Zealand 330
Midstream

Southeast Supply Header, LLC

Watch Neg U.S. 400
Transportation

Stagecoach Group PLC

Negative U.K. 519
Forest products and building materials

Standard Industries Inc.

Negative U.S. 4,862
Consumer products

Steelcase Inc.

Negative U.S. 450
Consumer products

Suedzucker AG

Negative Germany 1,766
High technology

Sunrise Communications Group AG

Negative Switzerland 4,287
Forest products and building materials

Suzano S.A.

Negative Brazil 4,650
Financial institutions

Synchrony Financial

Negative U.S. 8,000
Financial institutions

Synovus Financial Corp.

Negative U.S. 1,930
Consumer products

Sysco Corp.

Negative U.S. 12,814
Media and entertainment

Tabcorp Holdings Ltd.

Negative Australia 1,522
Financial institutions

Tanner Servicios Financieros S.A.

Negative Chile 465
Consumer products

Tapestry Inc.,

Negative U.S. 1,600
Capital goods

Timken Co. (The)

Negative U.S. 850
Chemicals, packaging, and environmental services

UPL Corp. Ltd.

Negative Mauritius 1,700
High technology

VMware Inc.

Negative U.S. 4,750
Metals, mining, and steel

Vale S.A.

Negative Brazil 7,450
Financial institutions

Virgin Money UK PLC

Negative U.K. 4,744
Forest products and building materials

West Fraser Timber Co. Ltd.

Negative Canada 300
Capital goods

Westinghouse Air Brake Technologies Corp.

Negative U.S. 4,000
Utilities

Yangzhou Urban Construction State-owned Assets Holding (Group) Co. Ltd.

Negative China 300
Homebuilders/real estate companies

Yuexiu Real Estate Investment Trust

Negative Hong Kong 400
Automotive

Zhejiang Geely Holding Group Co. Ltd.

Watch Neg China 3,212
Transportation

easyJet PLC

Watch Neg U.K. 1,766
Data as of July 31, 2020. Source: S&P Global Ratings Research. Potential fallen angels are defined as issuers rated ‘BBB-‘ by S&P Global Ratings with negative outlooks or ratings on CreditWatch with negative implications, and which currently have bonds outstanding. Includes all rated issuers with valid outstanding debt at the time of the rating action. Valid debt includes issuer level debt (both secured and unsecured), bank loans, subordinated debt, medium term notes, preferred stock, convertible debt and drawdowns under MTN programs and excludes commercial paper programs, shelf registrations, certificates of deposit, and debt rated on a confidential basis.

Table 3

35% Of Fallen Angels In 2020 So Far Have Been Multi-Notch Downgrades
Rating BB+ BB BB- B+ B B- CCC/C D
AAA 0 0 0 0 0 0 0 0
AA+ 0 0 0 0 0 0 0 0
AA 0 0 0 0 0 0 0 0
AA- 0 0 0 0 0 0 0 0
A+ 0 0 0 0 0 0 0 0
A 0 0 0 0 0 0 0 0
A- 0 0 0 0 0 0 0 0
BBB+ 0 0 0 0 0 0 0 0
BBB 10 0 0 0 0 0 0 0
BBB- 65 20 5 0 0 0 0 0
Note: Data as of July 31, 2020. Fallen angels are defined as investment-grade issuers with bonds outstanding that have been downgraded to speculative grade (i.e., from 'BBB-' or above to 'BB+' or below). Source: S&P Global Ratings Research.

Table 4

Potential Rising Stars At Nine
Subsector Issuer CreditWatch positive/positive outlook New to the list this month Country Debt amount (mil. $)
Utilities

The AES Corp.

Positive U.S. 10,246
High technology

Ericsson (Telefonaktiebolaget L.M.)

Positive Sweden 2,112
Automotive

Fiat Chrysler Automobiles N.V.

Watch positive Netherlands 19,397
Financial institutions

FleetCor Technologies Inc.

Positive U.S. 3,040
Consumer products

JDE Peet's N.V.

Positive Netherlands 5,496
Insurance

Magellan Health Inc.

Watch positive U.S. 400
Retail

Sobeys Inc.

Positive Canada 688
Transportation

Sovcomflot PAO

Positive Yes Russia 750
Transportation

Triton International Ltd.

Positive Bermuda 6,551
Note: Data as of July 31, 2020. Potential rising stars are defined as issuers rated 'BB+' by S&P Global Ratings with positive outlooks or ratings on CreditWatch with positive implications, and which currently have bonds outstanding. Includes all rated issuers with valid outstanding debt at the time of the rating action. Valid debt includes issuer level debt (both secured and unsecured), bank loans, subordinated debt, medium term notes, preferred stock, convertible debt and drawdowns under MTN programs and excludes commercial paper programs, shelf registrations, certificates of deposit, and debt rated on a confidential basis. Source: S&P Global Ratings Research.

Table 5

Two Rising Stars In 2020
Date Issuer To From Sector/subsector Country Rated debt affected (mil. $)
23-Jan-20

WellCare Health Plans Inc.

BBB- BB Insurance U.S. 1,950
01-Jun-20

FGL Holdings

BBB- BB+ Financial institutions Cayman Islands 550
Note: Data as of July 31, 2020. Rising stars are defined as speculative-grade issuers with bonds outstanding that have been upgraded to investment grade (i.e., from 'BB+' or below to 'BBB-' or above). Includes all rated issuers with valid outstanding debt at the time of the rating action. Valid debt includes issuer level debt (both secured and unsecured), bank loans, subordinated debt, medium term notes, preferred stock, convertible debt and drawdowns under MTN programs and excludes commercial paper programs, shelf registrations, certificates of deposit, and debt rated on a confidential basis. Source: S&P Global Ratings Research.

Related Research

This report does not constitute a rating action.

Credit Markets Research:Sarah Limbach, Paris + 33 14 420 6708;
Sarah.Limbach@spglobal.com
Vincent R Conti, Singapore + 65 6216 1188;
vincent.conti@spglobal.com
Sudeep K Kesh, New York (1) 212-438-7982;
sudeep.kesh@spglobal.com
Research Contributors:Lyndon Fernandes, Mumbai;
lyndon.fernandes@spglobal.com
Shripati Pranshu, Mumbai;
shripati.pranshu@spglobal.com

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