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Credit Trends: 'BBB' Pulse: Potential Fallen Angels Continue To Decrease Even As Risks Remain

COMMENTS

Credit Trends: U.S. Corporate Bond Yields As Of May 5, 2021

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Default, Transition, and Recovery: 2020 Annual U.S. Corporate Default And Rating Transition Study

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Default, Transition, and Recovery: Despite A Pickup In Positive Rating Actions, The Weakest Links Tally Remains High

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Credit Trends: 'BBB' Pulse: After A Turbulent Year, Rising Stars Once Again Outnumber Fallen Angels


Credit Trends: 'BBB' Pulse: Potential Fallen Angels Continue To Decrease Even As Risks Remain

The Proportion Of Fallen Angels To Investment-Grade Credits Is Stable

December saw two new fallen angels--automobile and aerospace company GKN Holdings Ltd. and Innergex Renewable Energy Inc.--bringing the total number in 2020 to 49. Fallen angels are issuers downgraded to speculative grade ('BB+' or below) from investment grade ('BBB-' or above). Reflecting the global macro trend of gradual recovery in the previous months, the ratio of fallen angels to investment-grade issuers was stable in the second half of the year.

Chart 1

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Nonetheless, the challenges brought by 2020--with the oil price collapse in the earlier months and the pandemic throughout the year--have unsurprisingly led to a rise in the global 12-month trailing default rate among fallen angels to 1.4%, from 0.4% at the end of 2019. This is just under the decade-high of 1.8% in September, but remains far below the more than 6% at the peak of the global financial crisis. In light of renewed COVID-19 lockdowns, default risks could remain fairly elevated for some time, despite the stabilizing fallen angel count.

Chart 2

image

Potential Fallen Angels Count Eases, But Challenges Linger

On a positive note, we ended 2020 with 99 potential fallen angels (issuers rated 'BBB-' with negative outlooks or ratings on CreditWatch with negative implications), down from the historical high of 126 in May and June, and from 107 in our last report. Aside from the two issuers that became fallen angels in December, three potential fallen angels were removed from the list due to the issuers requesting to withdraw the ratings, one because it no longer had outstanding rated debt, and two after their outlooks were revised to stable. There were no new potential fallen angels in December.

Chart 3

image

Only one potential fallen angel is currently on CreditWatch with negative implications, down from 26 of the 96 potential fallen angels in April. This points to less immediate credit risk and, potentially, a slower pace of new fallen angels in the near term. The estimated timeframe 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?"). Put differently, a negative outlook potentially leaves more time for the issuer to recover from current challenges.

Despite the improvements, credit risks remain elevated. Not only are there still 99 potential fallen angels, but most sectors have a somewhat high number of fallen angels as a share of their investment-grade credits. In five out of the 19 sectors we track, these ratios are in double digits: building materials (10%), transport (13%), aerospace/defense (14%), autos (16%), and media and entertainment, including lodging and leisure (28%). Nine sectors have higher ratios as of December 2020 than they had at the peak of the global financial crisis.

Chart 4

image

2020 Ended With The Lowest Number Of Rising Stars On Record

There were no new additions to rising stars and potential rising stars (issuers rated 'BB+' with positive outlooks or ratings on CreditWatch with positive implications) in December. The year thus ended with only seven rising stars, the lowest number since we began tracking the data in 1987, which highlights that, despite gradual improvements on the potential fallen angels count, we are still far from normal.

Chart 5

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Related Research

Appendix

Table 1

Two New Fallen Angels In December Raised The 2020 Count To 49
Date Issuer To From Sector/subsector Country Rated debt affected (mil. US$)
22-Dec-2020 GKN Holdings Ltd. BB+ BBB- Automotive U.K. 1,012
16-Dec-2020 Innergex Renewable Energy Inc. BB+ BBB- Merchant power Canada 125
30-Oct-2020 FirstEnergy Corp. BB+ BBB Utilities U.S. 18,373
12-Oct-2020 EPR Properties BB+ BBB- Homebuilders/real estate companies U.S. 3,486
22-Sep-2020 Southeast Supply Header, LLC BB+ BBB- Midstream U.S. 400
21-Sep-2020 Minsur S.A. (Breca Mineria S.A.C. and Subsidiaries) BB+ BBB- Metals, mining, and steel Peru 450
9-Sep-2020 Howmet Aerospace Inc BB+ BBB- Aerospace and defense U.S. 7,182
3-Sep-2020 Nordstrom Inc. BB+ BBB- Retail/restaurants U.S. 3,566
17-Aug-2020 Accor S.A. BB+ BBB- Media and entertainment France 5,490
31-Jul-2020 Valeo S.A. BB+ BBB- Automotive France 4,108
20-Jul-2020 IHO Verwaltungs GmbH BB+ BBB- Automotive Germany 8,608
14-Jul-2020 Zijin Mining Group Co. Ltd. BB+ BBB- Metals, mining, and steel China 350
9-Jul-2020 Emaar Properties PJSC BB+ BBB- Homebuilders/real estate companies U.A.E. 3,250
9-Jul-2020 DIFC Investments Ltd. BB+ BBB- Homebuilders/real estate companies U.A.E. 1,400
8-Jul-2020 Braskem S.A. (Odebrecht S.A.) BB+ BBB- Chemicals, packaging, and environmental services Brazil 4,150
26-Jun-2020 Axis Bank Ltd. BB+ BBB- Financial institutions India 1,095
23-Jun-2020 Carnival Corp. BB- BBB- Media and entertainment Panama 9,265
15-Jun-2020 Tech Data Corp. BB BBB- High technology U.S. 3,750
15-Jun-2020 Embraer S.A. BB+ BBB- Aerospace and defense Brazil 500
28-May-2020 Rolls-Royce PLC (Rolls-Royce Holdings PLC) BB BBB- Aerospace and defense U.K. 3,996
26-May-2020 Multibank Inc. y Subsidiarias BB+ BBB Financial institutions Panama 300
22-May-2020 Trinity Industries Inc. BB+ BBB- Transportation U.S. 400
20-May-2020 International Consolidated Airlines Group, S.A. BB BBB- Transportation Spain 1,086
20-May-2020 Deutsche Lufthansa AG BB+ BBB- Transportation Germany 1,086
20-May-2020 British Airways PLC BB BBB- Transportation U.K. 806
20-Apr-2020 Hillenbrand Inc., BB+ BBB- Capital goods U.S. 1,250
10-Apr-2020 Rockies Express Pipeline LLC BB+ BBB- Midstream U.S. 2,050
9-Apr-2020 Renault S.A. BB+ BBB- Automotive France 24,979
3-Apr-2020 ZF Friedrichshafen AG BB+ BBB- Automotive Germany 7,027
2-Apr-2020 Service Properties Trust BB+ BBB- Homebuilders/real estate companies U.S. 5,350
2-Apr-2020 Royal Caribbean Cruises Ltd. BB BBB- Media and entertainment U.S. 1,750
27-Mar-2020 Continental Resources Inc. BB+ BBB- Oil and gas U.S. 5,200
27-Mar-2020 Esselunga SpA BB+ BBB- Retail/restaurants Italy 1,105
27-Mar-2020 Trinidad Generation Unlimited BB+ BBB- Utilities Trinidad and Tobago 600
26-Mar-2020 Apache Corp. BB+ BBB Oil and gas U.S. 11,080
26-Mar-2020 Western Midstream Operating LP (Occidental Petroleum Corp.) BB+ BBB- Midstream U.S. 8,120
26-Mar-2020 Marks & Spencer PLC (Marks & Spencer Group PLC) BB+ BBB- Retail/restaurants U.K. 2,068
26-Mar-2020 Patterson-UTI Energy Inc., BB+ BBB Oil and gas U.S. 875
25-Mar-2020 Ford Motor Co. BB+ BBB- Automotive U.S. 113,862
25-Mar-2020 Occidental Petroleum Corp. BB+ BBB Oil and gas U.S. 43,913
24-Mar-2020 Delta Air Lines Inc. BB BBB- Transportation U.S. 4,550
23-Mar-2020 Immobiliare Grande Distribuzione SIIQ S.p.A. BB+ BBB- Homebuilders/real estate companies Italy 855
24-Feb-2020 Ruby Pipeline LLC BB BBB- Midstream U.S. 825
18-Feb-2020 Macy's Inc. BB+ BBB- Retail/restaurants U.S. 7,149
14-Feb-2020 Kraft Heinz Co. (The) BB+ BBB- Consumer products U.S. 31,539
4-Feb-2020 EQM Midstream Partners LP BB+ BBB- Utilities U.S. 3,500
3-Feb-2020 EQT Corp. BB+ BBB- Utilities U.S. 4,945
31-Jan-2020 Spirit AeroSystems Inc. BB BBB- Aerospace and defense U.S. 1,900
13-Jan-2020 Atlantia SpA BB- BBB- Utilities Italy 16,297
Data as of Dec. 31, 2020. 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. Source: S&P Global Ratings Research.

Table 2

Potential Fallen Angels Count Drops Below 100, Only One Issuer Placed On CreditWatch Negative
'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 Region Debt amount (mil. US$)
Financial institutions AIB Group PLC Negative Ireland Europe 7,419
Utilities Abertis Infraestructuras S.A. Negative Spain Europe 20,735
Financial institutions Ally Financial Inc. Negative U.S. U.S. 18,322
Media and entertainment Amadeus IT Group S.A. Negative Spain Europe 4,903
Metals, mining, and steel ArcelorMittal Negative Luxembourg Europe 13,418
Financial institutions Argo Group International Holdings Ltd. Negative U.S. U.S. 275
Transportation Aviation Capital Group LLC Negative U.S. U.S. 4,428
High technology Avnet Inc. Negative U.S. U.S. 1,200
Transportation Avolon Holdings Ltd. Negative Cayman Islands U.S. 10,649
Financial institutions Bank of Ireland Group PLC Negative Ireland Europe 7,041
Homebuilders/real estate companies Beijing Capital Group Co. Ltd., Negative China Asia/Pacific 500
Chemicals, packaging, and environmental services Beijing Haidian State-Owned Asset Investment Group Co. Ltd. Negative China Asia/Pacific 500
Telecommunications Bharti Airtel Ltd. Negative India Asia/Pacific 4,424
Aerospace and defense Boeing Co. Negative U.S. U.S. 50,248
Financial institutions BrightSphere Investment Group Inc. Negative U.S. U.S. 400
Homebuilders/real estate companies Brookfield Property REIT Inc. Negative U.S. U.S. 13,700
Metals, mining, and steel Cameco Corp. Negative Canada Canada 1,094
Retail/restaurants Capri Holdings Ltd. Negative British Virgin Islands Europe 450
Metals, mining, and steel Carpenter Technology Corp. Negative U.S. U.S. 600
Forest products and building materials Celulosa Arauco y Constitucion, S.A. (ARAUCO) Negative Chile Latin America 3,900
Oil and gas Cenovus Energy Inc. Negative Canada Canada 5,824
Homebuilders/real estate companies China Jinmao Holdings Group Ltd. Negative Hong Kong Asia/Pacific 1,741
Media and entertainment Choice Hotels International Inc. Negative U.S. U.S. 1,250
Homebuilders/real estate companies Citycon Oyj Negative Finland Europe 2,384
Retail/restaurants Darden Restaurants Inc. Negative U.S. U.S. 1,250
Financial institutions Discover Financial Services Negative U.S. U.S. 11,939
Forest products and building materials Eagle Materials Inc. Watch Neg U.S. U.S. 350
Oil and gas Ecopetrol S.A. Negative Colombia Latin America 9,350
Utilities Eesti Energia AS Negative Estonia Europe 613
Utilities Empresa Nacional del Petroleo Negative Chile Latin America 2,480
Merchant power Enable Midstream Partners, LP Negative U.S. U.S. 1,850
Midstream Energy Transfer LP Negative U.S. U.S. 47,902
Media and entertainment Expedia Group Inc., Negative U.S. U.S. 7,047
Financial institutions FCE Bank PLC Negative U.K. Europe 7,672
Financial institutions Financiera de Desarrollo Territorial S.A. FINDETER Negative Colombia Latin America 500
Transportation FirstGroup PLC Negative U.K. Europe 1,181
Capital goods Flowserve Corp. Negative U.S. U.S. 1,913
Capital goods Fluor Corp. Negative U.S. U.S. 1,713
Financial institutions Golub Capital BDC, Inc Negative U.S. U.S. 400
Diversified Grupo de Inversiones Suramericana S.A. Negative Colombia Latin America 850
Oil and gas Hess Corp Negative U.S. U.S. 7,600
Aerospace and defense Hexcel Corp. Negative U.S. U.S. 700
Media and entertainment Host Hotels & Resorts Inc. Negative U.S. U.S. 5,200
Media and entertainment Hyatt Hotels Corp. Negative U.S. U.S. 2,950
Financial institutions ICICI Bank Ltd. Negative India Asia/Pacific 2,150
Consumer products ISS A/S Negative Denmark Europe 3,187
Media and entertainment ITV PLC Negative U.K. Europe 2,084
Utilities Indigo Group S.A. Negative France Europe 2,421
Media and entertainment Informa PLC Negative U.K. Europe 2,875
Midstream Inter Pipeline Ltd. Negative Canada Canada 3,886
Media and entertainment InterContinental Hotels Group PLC Negative U.K. Europe 2,875
Financial institutions Intercorp Financial Services Inc. Negative Peru Latin America 600
Media and entertainment JCDecaux S.A. Negative France Europe 2,390
Sovereign Kingdom of Morocco Negative Morocco Eastern Europe/Middle East/Africa 8,927
Retail/restaurants Kohl's Corp. Negative U.S. U.S. 3,200
Media and entertainment Las Vegas Sands Corp. Negative U.S. U.S. 10,300
Automotive Lear Corp. Negative U.S. U.S. 2,300
Utilities Madrilena Red de Gas, S.A.U. Negative Spain Europe 1,165
Financial institutions Marex Spectron Group Ltd. Negative U.K. Europe 6
Media and entertainment Marriott International Inc. Negative U.S. U.S. 10,037
Retail/restaurants Metro AG Negative Germany Europe 2,053
Capital goods Metso Outotec Oyj Negative Finland Europe 858
Consumer products Molson Coors Beverage Co. Negative U.S. U.S. 7,381
Chemicals, packaging, and environmental services Mosaic Co. (The) Negative U.S. U.S. 4,870
Automotive Nexteer Automotive Group Ltd. Negative Cayman Islands U.S. 250
Automotive Nissan Motor Co. Ltd. Negative Japan Asia/Pacific 16,654
Financial institutions Nova Ljubljanska Banka D.D. Negative Slovenia Europe 294
Chemicals, packaging, and environmental services OCP S.A. Negative Morocco Eastern Europe/Middle East/Africa 2,850
Oil and gas Ovintiv Inc. Negative U.S. U.S. 6,450
Utilities PT Pelabuhan Indonesia III (Persero) Negative Indonesia Asia/Pacific 500
Consumer products PVH Corp. Negative U.S. U.S. 3,585
Automotive Peugeot S.A. Negative France Europe 19,306
Financial institutions Prospect Capital Corp. Negative U.S. U.S. 5,678
Utilities Puget Energy Inc. Negative U.S. U.S. 6,278
High technology Rakuten Inc., Negative Japan Asia/Pacific 800
Sovereign Republic of Colombia Negative Colombia Latin America 28,077
Media and entertainment Resorts World Las Vegas LLC Negative U.S. U.S. 1,400
Homebuilders/real estate companies Retail Opportunity Investments Corp. Negative U.S. U.S. 500
Sovereign Romania Negative Romania Europe 44,940
Oil and gas SK Innovation Co. Ltd., Negative Korea Asia/Pacific 500
Media and entertainment SKYCITY Entertainment Group Ltd. Negative New Zealand Asia/Pacific 339
Transportation Stagecoach Group PLC Negative U.K. Europe 540
Forest products and building materials Standard Industries Inc. Negative U.S. U.S. 5,031
Consumer products Steelcase Inc. Negative U.S. U.S. 450
Consumer products Suedzucker AG Negative Germany Europe 1,839
Forest products and building materials Suzano S.A. Negative Brazil Latin America 5,900
Financial institutions Synchrony Financial Negative U.S. U.S. 8,000
Financial institutions Synovus Financial Corp. Negative U.S. U.S. 2,130
Consumer products Sysco Corp. Negative U.S. U.S. 12,088
Financial institutions Tanner Servicios Financieros S.A. Negative Chile Latin America 367
Consumer products Tapestry Inc., Negative U.S. U.S. 1,600
Capital goods Timken Co. (The) Negative U.S. U.S. 850
Chemicals, packaging, and environmental services UPL Corp. Ltd. Negative Mauritius Eastern Europe/Middle East/Africa 1,700
High technology VMware Inc. Negative U.S. U.S. 4,750
Financial institutions Virgin Money UK PLC Negative U.K. Europe 4,938
Capital goods Westinghouse Air Brake Technologies Corp. Negative U.S. U.S. 3,500
Homebuilders/real estate companies Yuexiu Real Estate Investment Trust Negative Hong Kong Asia/Pacific 400
Automotive Zhejiang Geely Holding Group Co. Ltd., Negative China Asia/Pacific 3,945
Transportation easyJet PLC Negative U.K. Europe 1,839
Data as of Dec. 31, 2020. 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. Source: S&P Global Ratings Research.

Table 3

Time To Default Among Fallen Angels Is The Shortest In Real Estate, Insurance, and Financial Institutions
Sector Total fallen angels Defaults Average years from fall* Median years from fall St. dev. of years from fall % of fallen angels defaulted
Aerospace/automotive/capital goods/metal 222 53 6.9 4.2 7.3 24
Consumer/service sector 240 57 7.1 4.0 7.0 24
Energy and natural resources 134 21 3.6 1.5 6.1 16
Financial institutions 418 67 2.6 1.1 4.6 16
Forest & building products/homebuilders 97 20 7.0 7.0 5.9 21
Health care/chemicals 109 13 5.4 5.6 4.4 12
High tech/computers/office equipment 78 13 5.6 3.2 5.7 17
Insurance 204 51 2.4 1.3 3.3 25
Leisure time/media 109 20 5.1 2.7 5.0 18
Real estate 85 9 2.1 1.1 2.2 11
Telecommunications 61 12 3.2 1.2 5.0 20
Transportation 125 23 10.1 9.7 8.8 18
Utility 275 37 3.1 1.0 5.1 13
Total 2157 396 4.9 2.4 6.2 18
Data as of Dec. 31, 2020. Sources: S&P Global Ratings Research, and S&P Global Market Intelligence CreditPro.

Table 4

Rising Stars Saw Their All-Time Low In 2020
Date Issuer To From Sector/subsector Country Rated debt affected (mil. US$)
23-Jan-2020 WellCare Health Plans Inc. BBB- BB Insurance U.S. 1,950
1-Jun-2020 FGL Holdings BBB- BB+ Insurance Cayman Islands 550
18-Aug-2020 Sobeys Inc. (Empire Co. Ltd.) BBB- BB+ Retail/restaurants Canada 717
21-Aug-2020 Mediacom Communications Corp. BBB BB+ Telecommunications U.S. 20,700
17-Sep-2020 Mobile TeleSystems PJSC (Sistema (PJSFC)) BBB- BB+ Telecommunications Russia 1,000
2-Nov-2020 AES Corp. (The) BBB- BB+ Utilities U.S. 8,206
18-Nov-2020 Ericsson (Telefonaktiebolaget L.M.) BBB- BB+ High technology Sweden 2,184
Data as of Dec. 31, 2020. Rising stars are defined as speculative-grade issuers currently with bonds outstanding that have been upgraded into investment-grade (i.e. from 'BB+' and below to 'BBB-' and 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.

Table 5

Potential Rising Stars Stood At 17 At End-2020
Subsector Issuer Outlook/Creditwatch change New to the list this month Country Debt amount (mil. US$)
High technology Advanced Micro Devices Inc. Watch Positive U.S. 1,305
Financial institutions CIT Group Inc., Watch Positive U.S. 5,651
Automotive Fiat Chrysler Automobiles N.V. Watch Positive Netherlands 24,923
Financial institutions FleetCor Technologies Inc., Positive U.S. 3,040
Metals, mining & steel Gold Fields Ltd. Positive South Africa 1,000
Capital goods HD Supply Inc. Watch Positive Yes U.S. 1,820
Utilities Hrvatska Elektroprivreda d.d. Positive Croatia 550
Consumer products JDE Peet's N.V. Positive Netherlands 5,825
Homebuilders/real estate companies Lennar Corp. Positive U.S. 5,400
Insurance Magellan Health Inc. Watch Positive U.S. 400
Homebuilders/real estate companies MDC Holdings Inc. Positive U.S. 900
Forest products and building materials PulteGroup Inc., Positive U.S. 2,997
Homebuilders/real estate companies Shimao Group Holdings Ltd. Positive Cayman Islands 2,700
Forest products and building materials Smurfit Kappa Group PLC Positive Yes Ireland 2,091
Transportation Sovcomflot PAO Positive Russia 750
Utilities Vistra Corp. Positive U.S. 10,198
Metals, mining & steel Yamana Gold Inc. Positive Canada 1,800
Data as of Dec. 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.

This report does not constitute a rating action.

Credit Markets Research:Vincent R Conti, Singapore + 65 6216 1188;
vincent.conti@spglobal.com
Sarah Limbach, Paris + 33 14 420 6708;
Sarah.Limbach@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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