- Rising stars continue to outnumber fallen angels 17 to 12 in 2021, as the economic recovery drives improvements in credit trends.
- Mergers and acquisitions drove additions to rising stars in the first two months of 2021, with strong and/or improved business performance the main rationale since then.
- There were no new fallen angels in June, and the number of potential fallen angels further declined to 59.
- The decrease in potential fallen angels appears to have been broad-based, with negative biases among 'BBB-' issuers falling in the past 12 months for almost all sectors.
The Corporate Recovery Continues To Drive Improving Credit Quality
The economic recovery in major economies, particularly in the U.S. and China, continues to drive faster-than-expected recoveries in credit metrics across a number of sectors (see "'BBB' Pulse: Most 'BBB' Debt Is Now On Track For A Near-Term Recovery," July 7, 2021). This, along with funding costs that are still close to last year's lows, continues to translate into favorable trends for issuers at the edge of investment- and speculative-grade.
This year's count of fallen angels (issuers that were downgraded to speculative-grade from investment-grade) remains low, at 12, while the number of potential fallen angels (issuers rated 'BBB-' with either a negative outlook or CreditWatch) has fallen sharply compared to last year's peak. This improvement is reflected across most sectors, with the negative biases falling compared to mid-2020. Many of the sectors with the largest decreases in negative bias over the past year are those that were hardest hit by the pandemic, including automotive, media and entertainment, oil and gas, and retail. While all sectors have improved since last year, most sectors have also improved since the end of March.
In contrast, rising stars (issuers that were upgraded to investment-grade from speculative-grade) continue to gradually increase, with a steady pipeline of potential rising stars (issuers rated 'BB+' with either a positive outlook or CreditWatch). More interestingly, the strong performance of these issuers has been the rationale for most of these upgrades since March, after mergers and acquisitions (M&A) were cited as the main rationale for most of the rising stars in the first quarter.
As we mentioned in our previous report, historical trends suggest that large spikes in fallen angels during downturns tend to be followed by more modest increases in rising stars in the subsequent recoveries. That remains the case this year, but it is clear that, so far, credit trends are showing more positive rating actions.
Strong Business Performance Becoming The Main Rationale For Rising Stars
June saw one rising star in Lennar Corp., which was upgraded to 'BBB-' after establishing a multiyear track record of debt reduction and strong earnings that stemmed from its good industry position.
This brought the total number of rising stars this year to 17, already 10 more than for full-year 2020 and matching the count from full-year 2019. The rationales for most of these upgrades have cited M&A (with six) and strong operating performance, (with eight). While M&A accounted for most of the upgrades in the first quarter, improving operating performance accounted for more of the upgrades in the second quarter as the recovery among corporates accelerated.
Similarly, the count of potential rising stars remained at 19, unchanged from May. Clipper Acquisitions Corp., which saw its outlook revised to positive on the back of strong momentum from net inflows, was added to the list in June. May also saw four additions to the list-- Holding Co. Metalloinvest JSC, KION Group, Texas Capital Bancshares, and The Weir Group--all related to business performance rationales.
Two sectors account for most of the potential rising stars. Financial institutions leads with six, many of which are benefiting from better loss-absorbing capacity driven by the economic recovery combined with supportive government policies (see "Global Banking Country Outlook Midyear 2021: Tantalizing Signs Of Stability," July 22, 2021). Metals, mining, and steel follows with five, where higher commodity prices combined with increases in production capacity are resulting in positive outlook revisions.
No New Fallen Angels In June 2021, As Potential Fallen Angels Further Decline
There were no new fallen angels in June after five in May. Even in May, three of the corporate fallen angels were related to the downgrade of Colombia's sovereign rating to speculative-grade. As such, the pace of fallen angel downgrades continues to slow.
This is more clearly seen when looking at the shrinking pool of potential fallen angels, which is now down to 59. This marked a net decrease of six--with nine removals and three additions in June. This total count is now less than half of its all-time high of 126 in June 2020.
The nine removals were Capri Holdings, Choice Hotels International, Citycon Oyj, ICICI Bank, Immofinanz, Madrilena Red de Gas, Nexteer Automotive Group, PVH Corp., and Virgin Money UK. Almost all removals reflected rating outlooks that were revised to stable. The only exception was Nexteer Automotive Group, which no longer had publicly-rated debt outstanding at the end of June.
The three additions to the list had more idiosyncratic rationales:
- French property developer Altarea SCA had its outlook revised to negative after announcing plans to acquire real estate asset manager Primonial, which could lead to less stable and predictable EBITDA.
- Canada-based real estate developer and manager First Capital Real Estate Investment Trust had its outlook revised to negative due to uncertainty around the timing and extent of its credit protection measures.
- Kentucky-based natural gas pipeline operator Southern Star Central Corp. had its outlook revised to negative, reflecting our expectation that leverage metrics will remain elevated due to its asset modernization program.
Most Sectors Are On The Mend, At Least Gradually
Media and entertainment continues to have the most potential fallen angels with 11, as the lodging and leisure subsector remains one of the most hard-hit by the pandemic.
The financial institutions sector follows with 10. However, because of the high number of investment-grade entities in this sector, the proportion of potential fallen angels as a share of the investment-grade population for financial institutions is low. Trailing these two sectors are consumer products and homebuilders and real estate, each with five potential fallen angels.
While many of the potential fallen angels are concentrated in a few sectors, it is illuminating that nearly all sectors have seen improvement over the past 12 months, and most have shown improvement over the past three months as well. Over the past 12 months, the negative bias among the 'BBB-' rated issuers dropped for 15 out of 19 sectors. For the other four sectors, negative bias was largely unchanged over the past year, coming from a low base. As shown on Chart 1, the negative bias has declined by double digits percentage points in six sectors over the past three months as improving business conditions are being reflected across the board.
|12 Fallen Angels Through June 30, 2021|
|Date||Issuer||To||From||Sector/subsector||Country||Rated debt affected (mil. $)|
|5/20/2021||Ecopetrol S.A.||BB+||BBB-||Oil and gas||Colombia||9,850|
|5/20/2021||Grupo de Inversiones Suramericana S.A.||BB+||BBB-||Diversified||Colombia||550|
|5/20/2021||Financiera de Desarrollo Territorial S.A. FINDETER||BB+||BBB-||Financial institutions||Colombia||500|
|5/19/2021||Republic of Colombia||BB+||BBB-||Sovereign||Colombia||30,184|
|4/22/2021||G4S PLC (Allied Universal Topco LLC)||B||BBB-||Consumer products||U.K.||1,867|
|4/16/2021||OCP S.A.||BB+||BBB-||Chemicals, packaging, and environmental services||Morocco||2,850|
|4/2/2021||Kingdom of Morocco||BB+||BBB-||Sovereign||Morocco||8,773|
|3/25/2021||Empresa Nacional del Petroleo||BB+||BBB-||Utilities||Chile||2,480|
|3/16/2021||Host Hotels & Resorts Inc.||BB+||BBB-||Media and entertainment||U.S.||4,750|
|2/17/2021||TechnipFMC Plc||BB+||BBB+||Oil and gas||U.K.||2,572|
|2/5/2021||Hexcel Corp.||BB+||BBB-||Aerospace and defense||U.S.||700|
|Data as of June 30, 2021. Fallen angels are defined as investment-grade issuers currently with bonds outstanding that have been downgraded into speculative-grade (i.e. from 'BBB-' or above to 'BB+' or below). Includes all rated issuers with valid outstanding debt at the time of the rating action. Valid debt includes issuer level debt (both secured and unsecured), bank loans, subordinated debt, medium term notes, preferred stock, convertible debt, and drawdowns under MTN programs and excludes commercial paper programs, shelf registrations, certificates of deposit, and debt rated on a confidential basis. Source: S&P Global Ratings Research.|
|Potential Fallen Angels Count Drops To 59; CW Negative Placements Remain At Four|
|BBB-' rated issuers with negative outlooks or on Creditwatch with negative implications|
|Subsector||Issuer||CreditWatch negative/negative outlook||New to the list this month||Country||Debt amount (mil. US$)|
|Aerospace and defense||Boeing Co.||Negative||U.S.||60,073|
|Automotive||Nissan Motor Co. Ltd.||Negative||Japan||17,387|
|Automotive||Zhejiang Geely Holding Group Co. Ltd.,||Negative||China||3,255|
|Capital goods||Flowserve Corp.||Negative||U.S.||1,300|
|Capital goods||Fluor Corp.||Negative||U.S.||1,697|
|Capital goods||Westinghouse Air Brake Technologies Corp.||Negative||U.S.||3,500|
|Chemicals, packaging, and environmental services||Beijing Haidian State-Owned Asset Investment Group Co. Ltd.||Negative||China||500|
|Chemicals, packaging, and environmental services||UPL Corp. Ltd.||Negative||Mauritius||1,200|
|Consumer products||ISS A/S||Negative||Denmark||2,506|
|Consumer products||Meituan||Negative||Cayman Islands||2,000|
|Consumer products||Molson Coors Beverage Co.||Negative||U.S.||7,355|
|Consumer products||Steelcase Inc.||Negative||U.S.||450|
|Consumer products||Suedzucker AG||Negative||Germany||1,790|
|Financial institutions||AIB Group PLC||Negative||Ireland||8,164|
|Financial institutions||Argo Group International Holdings Ltd.||Negative||U.S.||275|
|Financial institutions||Bank of Ireland Group PLC||Negative||Ireland||8,366|
|Financial institutions||FCE Bank PLC||Negative||U.K.||5,941|
|Financial institutions||Golub Capital BDC, Inc||Negative||U.S.||800|
|Financial institutions||Intercorp Financial Services Inc.||Negative||Peru||600|
|Financial institutions||Marex Group PLC||Negative||U.K.||56|
|Financial institutions||Prospect Capital Corp.||Negative||U.S.||7,425|
|Financial institutions||Tanner Servicios Financieros S.A.||Negative||Chile||354|
|Financial institutions||BrightSphere Investment Group Inc.||Watch Neg||U.S.||400|
|Forest products and building materials||Domtar Corp.||Watch Neg||U.S.||500|
|Forest products and building materials||Standard Industries Inc.||Watch Neg||U.S.||5,005|
|Health care||Perrigo Co. plc||Negative||Ireland||1,200|
|High technology||Rakuten Group Inc.||Watch Neg||Japan||3,743|
|Homebuilders/real estate companies||Altarea SCA||Negative||Yes||France||2,148|
|Homebuilders/real estate companies||Brookfield Property REIT Inc.||Negative||U.S.||13,700|
|Homebuilders/real estate companies||China Jinmao Holdings Group Ltd.||Negative||Hong Kong||1,050|
|Homebuilders/real estate companies||First Capital Real Estate Investment Trust||Negative||Yes||Canada||1,905|
|Homebuilders/real estate companies||SL Green Realty Corp.||Negative||U.S.||10,750|
|Media and entertainment||Amadeus IT Group S.A.||Negative||Spain||5,370|
|Media and entertainment||Expedia Group Inc.,||Negative||U.S.||9,426|
|Media and entertainment||Genting New York LLC||Negative||U.S.||525|
|Media and entertainment||Hyatt Hotels Corp.||Negative||U.S.||2,950|
|Media and entertainment||ITV PLC||Negative||U.K.||2,029|
|Media and entertainment||Informa PLC||Negative||U.K.||2,833|
|Media and entertainment||InterContinental Hotels Group PLC||Negative||U.K.||2,892|
|Media and entertainment||JCDecaux S.A.||Negative||France||2,327|
|Media and entertainment||Las Vegas Sands Corp.||Negative||U.S.||10,300|
|Media and entertainment||Marriott International Inc.||Negative||U.S.||10,387|
|Media and entertainment||Resorts World Las Vegas LLC||Negative||U.S.||1,750|
|Merchant Power||Enable Midstream Partners, LP||Negative||U.S.||1,850|
|Metals, mining, and steel||Cameco Corp.||Negative||Canada||811|
|Metals, mining, and steel||Carpenter Technology Corp.||Negative||U.S.||600|
|Midstream||Southern Star Central Corp||Negative||Yes||U.S.||750|
|Oil and gas||SK Innovation Co. Ltd.,||Negative||Korea||500|
|Telecommunications||Bharti Airtel Ltd.||Negative||India||4,755|
|Telecommunications||CAS Holding No.1 Ltd.||Negative||British Virgin Islands||3,539|
|Transportation||Avolon Holdings Ltd.||Negative||Cayman Islands||9,674|
|Transportation||Stagecoach Group PLC||Negative||U.K.||556|
|Utilities||Abertis Infraestructuras S.A.||Negative||Spain||21,827|
|Utilities||Eesti Energia AS||Negative||Estonia||597|
|Utilities||Indigo Group S.A.||Negative||France||2,357|
|Utilities||PT Pelabuhan Indonesia III (Persero)||Negative||Indonesia||500|
|Data as of June 30, 2021. 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.|
|17 Rising Stars In 2021 So Far|
|Date||Issuer||To||From||Sector/subsector||Country||Rated debt affected (mil. $)|
|09-Jun-21||Lennar Corp.||BBB-||BB+||Homebuilders/real estate companies||U.S.||5,000|
|26-May-21||CDW Corp.||BBB-||BB+||High technology||U.S.||6,940|
|06-May-21||Double Eagle III Midco 1 LLC (DoublePoint Energy, LLC)||BBB||B-||Oil and gas||U.S.||550|
|22-Apr-21||Qorvo Inc.,||BBB-||BB+||High technology||U.S.||1,550|
|09-Apr-21||MDC Holdings Inc.||BBB-||BB+||Homebuilders/real estate companies||U.S.||900|
|08-Apr-21||Shimao Group Holdings Ltd.||BBB-||BB+||Homebuilders/real estate companies||Cayman Islands||2,100|
|05-Apr-21||PulteGroup Inc.,||BBB-||BB+||Homebuilders/real estate companies||U.S.||2,097|
|30-Mar-21||Triton International Ltd.||BBB-||BB+||Transportation||Bermuda||6,098|
|18-Mar-21||QEP Resources Inc.||BBB-||B||Oil and gas||U.S.||1,600|
|18-Mar-21||Grupo Cementos de Chihuahua S.A.B. de C.V.||BBB-||BB+||Forest products and building materials||Mexico||260|
|24-Feb-21||Smurfit Kappa Group PLC||BBB-||BB+||Forest products and building materials||Ireland||2,125|
|23-Feb-21||Advanced Micro Devices Inc.||BBB-||BB+||High technology||U.S.||1,305|
|01-Feb-21||Norbord Inc.||BBB-||BB||Forest products and building materials||Canada||665|
|13-Jan-21||Parsley Energy, LLC.||BBB||BB||Oil and gas||U.S.||4,750|
|08-Jan-21||Fiat Chrysler Automobiles N.V.||BBB-||BB+||Automotive||Netherlands||25,561|
|07-Jan-21||WPX Energy Inc.||BBB-||BB-||Oil and gas||U.S.||4,750|
|Data as of June 30, 2021. Source: S&P Global Ratings Research.|
|19 Potential Rising Stars|
|'BB+' rated issuers with positive outlooks or on CreditWatch with positive implications|
|Subsector||Issuer||CreditWatch positive/positive outlook||New to the list this month||Country||Debt amount (mil. US$)|
|Automotive||Volvo Car AB (Zhejiang Geely Holding Group Co., Ltd.)||Positive||Sweden||2,555|
|Capital goods||KION Group AG||Positive||Germany||597|
|Capital goods||The Weir Group PLC||Positive||U.K.||800|
|Chemicals, packaging and environmental services||Alpek, S.A.B. de C.V. (Alfa S.A.B. de C.V.)||Positive||Mexico||2,050|
|Financial institutions||Cadence Bancorp. (Cadence Bancorp LLC)||Watch Pos||U.S.||85|
|Financial institutions||CIT Group Inc.,||Watch Pos||U.S.||5,151|
|Financial institutions||Clipper Acquisitions Corp.||Positive||Yes||U.S.||675|
|Financial institutions||FleetCor Technologies Inc.,||Positive||U.S.||4,190|
|Financial institutions||New York Community Bancorp Inc.,||Positive||U.S.||1,040|
|Financial institutions||Texas Capital Bancshares Inc.||Positive||U.S.||1,100|
|High technology||Dell Technologies Inc.||Watch Pos||U.S.||95,436|
|Insurance||Magellan Health Inc.||Watch Pos||U.S.||400|
|Media and entertainment||Netflix Inc.||Positive||U.S.||15,569|
|Metals, mining and steel||Gold Fields Ltd.||Positive||South Africa||1,000|
|Metals, mining and steel||Holding Co. Metalloinvest JSC||Positive||Russia||800|
|Metals, mining and steel||Minsur S.A. (Breca Mineria S.A.C. and Subsidiaries)||Positive||Peru||450|
|Metals, mining and steel||Yamana Gold Inc.||Positive||Canada||1,800|
|Metals, mining and steel||Zijin Mining Group Co. Ltd.||Positive||China||350|
|Utilities||Hrvatska Elektroprivreda d.d.||Positive||Croatia||550|
|Data as of June 30, 2021. 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.|
- Global Banking Country Outlook Midyear 2021: Tantalizing Signs Of Stability, July 22, 2021
- 'BBB' Pulse: Most 'BBB' Debt Is Now On Track For A Near-Term Recovery, July 7, 2021
- Altarea Outlook Revised To Neg On Plans To Acquire Real Estate Asset Manager Primonial Group; Affirmed at 'BBB-', June 30, 2021
- Austrian Commercial Real Estate Company Immofinanz Outlook Revised To Stable From Negative On Rejected Takeover Offer, June 30, 2021
- Southern Star Central Corp. Outlook Revised To Negative; 'BBB-' Rating Affirmed, June 28, 2021
- Capri Holdings Ltd. Outlook Revised To Stable From Negative On Expected Performance Improvement, Ratings Affirmed, June 28, 2021
- Clipper Acquisitions Corp. Outlook Revised To Positive On Strong Inflows And Lower Leverage; 'BB+' Ratings Affirmed, June 25, 2021
- Various Rating Actions Taken On U.K. Banks On Recovering Economy, June 24, 2021
- Finland-based Retail Property Owner Citycon Outlook Revised To Stable From Negative; 'BBB-/A-3' Ratings Affirmed, June 22, 2021
- ICICI Bank Outlook Revised To Stable From Negative; Ratings Affirmed, June 18, 2021
- Choice Hotels International Inc. Outlook Revised To Stable From Negative On Lodging Demand Recovery; Ratings Affirmed, June 17, 2021
- PVH Corp. Outlook Revised To Stable From Negative On Stronger-Than-Expected Consumer Demand; 'BBB-' Rating Affirmed, June 14, 2021
- Lennar Corp. Upgraded To 'BBB-' From 'BB+' On Robust Multiyear Performance And Lower Debt; Outlook Stable, June 9, 2021
- Spain-based Gas Distributor Madrilena Red de Gas, S.A.U. Outlook Revised To Stable; 'BBB-' Rating Affirmed, June 9, 2021
- First Capital Real Estate Investment Trust Ratings Affirmed Despite Elevated Leverage, Outlook Negative, June 4, 2021
This report does not constitute a rating action.
|Credit Markets Research:||Vincent R Conti, Singapore + 65 6216 1188;|
|Sudeep K Kesh, New York + 1 (212) 438 7982;|
|Ratings Performance Analytics:||Evan M Gunter, New York + 1 (212) 438 6412;|
|Research Contributor:||Shripati Pranshu, CRISIL Global Analytical Center, an S&P affiliate, Mumbai|
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