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Credit Trends: 'BBB' Pulse: The Future Looks Bright As Potential Rising Stars Shoot Up

(Editor's Note: This article and the data supporting it discuss developments through Oct. 31, 2021. Developments after this date will be included in future articles.)

Positive Momentum Returns To Rising Stars

October saw no new fallen angels (issuers downgraded to speculative grade, 'BB+' or below, from investment-grade, 'BBB-' or above), keeping the year-to-date count of fallen angels at 20. In contrast, the addition of four new rising stars (issuers that were upgraded to investment-grade, 'BBB-' or above, from speculative grade, 'BB+' or below) in October expanded the year-to-date count of rising stars to 27, a significant improvement over the full-year counts of 15 and five recorded in 2019 and 2020, respectively.

Chart 1

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Chart 2

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Chart 3

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Moreover, since 2020, there has been more than a two-fold drop in the number of potential fallen angels and a simultaneous rise in the number of potential rising stars, which is at the highest level since February 2019. These trends are global, caused by improving economic and credit conditions. Despite positive trends, actual net upgrades (across all rating categories) as of the end of September only represented about 12% of the net COVID-induced downgrades in 2020, so significant further progress is required to return to pre-pandemic levels.

Chart 4

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The number of potential rising stars (issuers rated 'BB+' with either a positive outlook or CreditWatch) increased to 37 in October 2021, although it should be noted that 11 of the new additions this month relate to subsidiaries of one specific issuer (First Energy Corp.; see "FirstEnergy Corp. Subsidiary Ratings Raised; On CreditWatch Positive," Oct. 19, 2021). This is the highest monthly total since we first began tracking this data in April 2007. Excluding First Energy Corp.'s subsidiaries, the total potential rising stars as of end-October is 26--still the highest since August 2019.

Table 1

Additions To And Removals From Potential Rising Stars In October 2021
Additions Removals

AngloGold Ashanti Ltd.

Hrvatska Elektroprivreda d.d.

Aristocrat Leisure Ltd.

Netflix Inc.

Tesla Inc.

Zijin Mining Group Co. Ltd.

Verallia S.A.

American Transmission Systems Inc.

Cleveland Electric Illuminating Co.

Jersey Central Power & Light Co.

Metropolitan Edison Co.

Monongahela Power Co.

Ohio Edison Co.

Pennsylvania Electric Co.

Potomac Edison Co.

Toledo Edison Co.

Trans-Allegheny Interstate Line Co.

West Penn Power Co.

Data as of Oct. 31, 2021. Source: S&P Global Ratings Research.

Chart 5

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Underpinned by the positive CreditWatch statuses on FirstEnergy Corp.'s 11 subsidiaries, U.S.-based issuers from the utilities sector led the count of potential rising stars, although this sector also accounts for the third-most potential fallen angels globally (see charts 5 and 8).

The Count Of Potential Fallen Angels Is Stable

Chart 6

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Potential fallen angels (issuers rated 'BBB-' with either a negative outlook or CreditWatch) increased to 48 in October from 47 in September 2021.

Table 2

Additions To And Removals From Potential Fallen Angels In October 2021
Additions Removals

Inter Pipeline Ltd.

Suedzucker AG

Southwest Gas Holdings Inc.

Data as of Oct. 31, 2021. Source: S&P Global Ratings Research.

Chart 7

image

The incremental cost of funding for a speculative-grade issuer (relative to investment-grade) remains low but is creeping up. The difference in spreads between 'BB+' and 'BBB-' hovered around an average of 69 basis points (bps) in October 2021, slightly up from 64 bps in September but still much lower than 178 bps a year before.

Chart 8

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Media and entertainment and financial institutions continued to lead the count of potential fallen angels (see chart 5). Issuers from the European region accounted for a majority of the potential fallen angels in these sectors. While most companies in the media and entertainment sector are expected to see credit metrics improve in 2021, it will take the out-of-home segment (cinemas, sports events, concerts, and trade shows and conferences) longer to recover--potentially until 2023--due to continued pressure from the pandemic on their leverage and cash flow (see "Industry Top Trends Midyear 2021: Resilience, Recovery, Risks," July 20, 2021).

Appendix

Definitions:

Fallen angels are defined as previously investment-grade issuers with bonds outstanding that have been downgraded into speculative-grade (i.e. from 'BBB-' or above, to 'BB+' or below). 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.

Rising stars are defined as previously speculative-grade issuers with bonds outstanding that have been upgraded into investment-grade (i.e. from 'BB+' and below, to 'BBB-' and above). 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.

All four of the above definitions include 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. Moreover, if a subsidiary's parent is itself a fallen angel, rising star, potential fallen angel, or potential rising star, only the parent is counted in the list.

Table 3

Fallen Angels Count Remains At 20 Through October 2021
Date Issuer To From Sector/subsector Country Rated debt affected (mil. US$)
2/5/2021 Hexcel Corp. BB+ BBB- Aerospace and defense U.S. 700
2/17/2021 TechnipFMC Plc BB+ BBB+ Oil and gas U.K. 2,572
3/16/2021 Host Hotels & Resorts Inc. BB+ BBB- Media and entertainment U.S. 4,750
3/25/2021 Empresa Nacional del Petroleo BB+ BBB- Utilities Chile 2,480
4/2/2021 Kingdom of Morocco BB+ BBB- Sovereign Morocco 8,773
4/16/2021 OCP S.A. BB+ BBB- Chemicals, packaging, and environmental services Morocco 2,850
4/22/2021 G4S PLC (Allied Universal Topco LLC) B BBB- Consumer products U.K. 1,867
5/6/2021 ProAssurance Corp. BB BBB- Insurance U.S. 250
5/19/2021 Republic of Colombia BB+ BBB- Sovereign Colombia 30,184
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
7/26/2021 Standard Industries Inc. BB+ BBB- Forest products and building materials U.S. 7,491
7/26/2021 Rakuten Group Inc. BB+ BBB- High technology Japan 3,726
8/4/2021 Carpenter Technology Corp. BB+ BBB- Metals, mining, and steel U.S. 700
8/13/2021 BrightSphere Investment Group Inc. BB+ BBB- Financial institutions U.S. 400
8/20/2021 Resorts World Las Vegas LLC (Genting Bhd.) BB+ BBB- Media and entertainment U.S. 1,750
8/20/2021 Genting New York LLC (Genting Bhd.) BB+ BBB- Media and entertainment U.S. 525
9/2/2021 Entergy New Orleans, LLC (Entergy Corp) BB+ BBB Utilities U.S. 325
9/10/2021 Perrigo Company plc BB BBB- Health care Ireland 1,200
Data as of Oct. 31, 2021. Fallen angels are defined as previously investment-grade issuers 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. Moreover, if a subsidiary's parent is itself a fallen angel, only the parent is counted. Source: S&P Global Ratings Research.

Table 4

Potential Fallen Angels Count Increases To 48 After Two Additions And One Removal
'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$)
Utilities Abertis Infraestructuras S.A. Negative Spain 19,491
Utilities Adani Electricity Mumbai Ltd. Negative India 1,000
Financial institutions AIB Group PLC Negative Ireland 7,987
Homebuilders/real estate co. Altarea SCA Negative France 2,089
Media and entertainment Amadeus IT Group S.A. Negative Spain 5,222
Financial institutions Argo Group International Holdings Ltd. Negative U.S. 275
Transportation Avolon Holdings Ltd. Negative Cayman Islands 7,637
Financial institutions Bank of Ireland Group PLC Negative Ireland 9,169
Aerospace and defense Boeing Co. Negative U.S. 58,923
Metals, mining, and steel Cameco Corp. Negative Canada 810
Telecommunications CAS Holding No.1 Ltd. Negative British Virgin Islands 3,532
Homebuilders/real estate co. China Jinmao Holdings Group Ltd. Negative Hong Kong 1,050
Utilities Cleco Corporate Holdings LLC Negative U.S. 2,643
Forest products and building materials Domtar Corp. Watch Neg U.S. 500
Transportation easyJet PLC Negative U.K. 3,133
Utilities Eesti Energia AS Negative Estonia 580
Merchant power Enable Midstream Partners, LP Negative U.S. 1,850
Media and entertainment Expedia Group Inc., Negative U.S. 9,404
Financial institutions FCE Bank PLC Negative U.K. 4,993
Homebuilders/real estate co. First Capital Real Estate Investment Trust Negative Canada 1,904
Transportation FirstGroup PLC Negative U.K. 720
Capital goods Fluor Corp. Negative U.S. 1,680
Aerospace and defense Huntington Ingalls Industries Inc. Negative U.S. 2,150
Media and entertainment Hyatt Hotels Corp. Watch Neg U.S. 2,700
Media and entertainment Informa PLC Negative U.K. 2,764
Midstream Inter Pipeline Ltd. Negative Yes Canada 3,768
Media and entertainment InterContinental Hotels Group PLC Negative U.K. 2,837
Financial institutions Intercorp Financial Services Inc. Negative Peru 600
Consumer products ISS A/S Negative Denmark 2,437
Media and entertainment ITV PLC Negative U.K. 1,973
Media and entertainment JCDecaux S.A. Negative France 2,262
Media and entertainment Las Vegas Sands Corp. Negative U.S. 10,300
Financial institutions Marex Group PLC Negative U.K. 50
Media and entertainment Marriott International Inc. Negative U.S. 9,987
Consumer products Meituan Negative Cayman Islands 2,000
Retail/restaurants Metro AG Negative Germany 1,363
Consumer products Molson Coors Beverage Co. Negative U.S. 6,328
Utilities National Gas Co. of Trinidad & Tobago Ltd. (The) Negative Trinidad and Tobago 400
Automotive Nissan Motor Co. Ltd. Negative Japan 17,871
Utilities PT Pelabuhan Indonesia III (Persero) Negative Indonesia 500
Sovereign Republic of Trinidad and Tobago Negative Trinidad and Tobago 2,231
Oil and gas SK Innovation Co. Ltd., Negative Korea 500
Homebuilders/real estate co. SL Green Realty Corp. Negative U.S. 10,400
Utilities Southwest Gas Holdings Inc. Negative Yes U.S. 3,439
Consumer products Steelcase Inc. Negative U.S. 450
Financial institutions Tanner Servicios Financieros S.A. Negative Chile 490
Chemicals, packaging, and environmental services UPL Corp. Ltd. Negative Mauritius 1,200
Automotive Zhejiang Geely Holding Group Co. Ltd., Negative China 3,197
Data as of Oct. 31, 2021. 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. This debt may be rated above or below the issuer credit rating. 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. Moreover, if a subsidiary's parent is itself a potential fallen angel, only the parent is counted. Source: S&P Global Ratings Research.

Table 5

27 Rising Stars Through October 2021
Date Issuer To From Sector/subsector Country Rated debt affected (mil. US$)
1/7/2021 WPX Energy Inc., BBB- BB- Oil and gas U.S. 4,750
1/8/2021 Fiat Chrysler Automobiles N.V. BBB- BB+ Automotive Netherlands 25,561
1/13/2021 Parsley Energy, LLC. BBB BB Oil and gas U.S. 4,750
2/1/2021 Norbord Inc. BBB- BB Forest products and building materials Canada 665
2/23/2021 Advanced Micro Devices Inc. BBB- BB+ High technology U.S. 1,305
2/24/2021 Smurfit Kappa Group PLC BBB- BB+ Forest products and building materials Ireland 2,125
3/18/2021 QEP Resources Inc. BBB- B Oil and gas U.S. 1,600
3/18/2021 Grupo Cementos de Chihuahua S.A.B. de C.V. BBB- BB+ Forest products and building materials Mexico 260
3/30/2021 Triton International Ltd. BBB- BB+ Transportation Bermuda 6,098
4/5/2021 PulteGroup Inc., BBB- BB+ Homebuilders/real estate co U.S. 2,097
4/8/2021 Shimao Group Holdings Ltd. BBB- BB+ Homebuilders/real estate co Cayman Islands 2,100
4/9/2021 MDC Holdings Inc. BBB- BB+ Homebuilders/real estate co U.S. 900
4/12/2021 Sovcomflot PAO BBB- BB+ Transportation Russia 750
4/22/2021 Qorvo Inc., BBB- BB+ High technology U.S. 1,550
5/6/2021 Double Eagle III Midco 1 LLC (DoublePoint Energy, LLC) BBB B- Oil and gas U.S. 550
5/26/2021 CDW Corp. BBB- BB+ High technology U.S. 6,940
6/9/2021 Lennar Corp. BBB- BB+ Homebuilders/real estate co U.S. 5,000
8/20/2021 CF Industries Inc. (CF Industries Holdings, Inc) BBB- BB+ Chemicals, packaging, and environmental services U.S. 3,000
8/24/2021 KION Group AG BBB- BB+ Capital goods Germany 584
9/2/2021 Braskem S.A. (Odebrecht S.A.) BBB- BB+ Chemicals, packaging, and environmental services Brazil 3,250
9/7/2021 Tech Data Corp. BBB- BB High technology U.S. 1,000
9/21/2021 Holding Co. Metalloinvest JSC BBB- BB+ Metals, mining, and steel Russia 800
9/29/2021 Dell Technologies Inc. BBB BB+ High technology U.S. 86,536
10/5/2021 Hrvatska Elektroprivreda d.d. BBB- BB+ Utilities Croatia 550
10/13/2021 Gazprombank JSC BBB- BB+ Financial Institutions Russia 139
10/20/2021 Tata Steel Ltd. (Tata Sons Pte. Ltd.) BBB- BB Metals, mining, and steel India 2,300
10/25/2021 Netflix Inc. BBB BB+ Media and entertainment U.S. 15,420
Data as of Oct. 31, 2021. Rising stars are defined as previously speculative-grade issuers 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. Moreover, if a subsidiary's parent is itself a rising star, only the parent is counted. Source: S&P Global Ratings Research.

Table 6

Potential Rising Stars Increase To A Record 37 Through October 2021
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 Rated debt affected (mil. US$)
Chemicals, packaging, and environmental services Alpek, S.A.B. de C.V. Positive Mexico 2,050
Utilities American Transmission Systems Inc., Watch Pos Yes U.S. 1,400
Metals, mining, and steel AngloGold Ashanti Ltd. Positive Yes South Africa 2,500
Media and entertainment Aristocrat Leisure Ltd. Positive Yes Australia 11,161
Financial institutions Cadence Bancorp. Watch Pos U.S. 85
Financial institutions CIT Group Inc., Watch Pos U.S. 5,151
Utilities Cleveland Electric Illuminating Co. Watch Pos Yes U.S. 1,250
Financial institutions Clipper Acquisitions Corp. Positive U.S. 675
Oil and gas Continental Resources Inc. Positive U.S. 4,200
Media and entertainment CoStar Group Inc. Positive U.S. 1,000
Utilities EQT Corp. Positive U.S. 4,760
Financial institutions FleetCor Technologies Inc., Positive U.S. 4,375
Metals, mining, and steel Gold Fields Ltd. Positive South Africa 1,000
Health care HCA Healthcare Inc., Positive U.S. 39,444
Health care Hill-Rom Holdings Inc. Watch Pos U.S. 475
Chemicals, packaging, and environmental services Huntsman Corp. Positive U.S. 1,898
Consumer products JBS S.A. Positive Brazil 12,550
Utilities Jersey Central Power & Light Co. Watch Pos Yes U.S. 2,198
Automotive Lithia Motors Inc., Positive U.S. 1,750
Insurance Magellan Health Inc. Watch Pos U.S. 400
Utilities Metropolitan Edison Co. Watch Pos Yes U.S. 1,050
Metals, mining, and steel Minsur S.A. Positive Peru 450
Utilities Monongahela Power Co. Watch Pos Yes U.S. 1,450
Financial institutions New York Community Bancorp Inc., Positive U.S. 1,040
Consumer products Newell Brands Inc. Positive U.S. 7,560
Utilities Ohio Edison Co. Watch Pos Yes U.S. 675
Utilities Pennsylvania Electric Co. Watch Pos Yes U.S. 1,050
Utilities Potomac Edison Co. Watch Pos Yes U.S. 175
Automotive Tesla Inc., Positive Yes U.S. 2,818
Financial institutions Texas Capital Bancshares Inc., Positive U.S. 1,100
Capital goods The Weir Group PLC Positive U.K. 800
Utilities Toledo Edison Co. Watch Pos Yes U.S. 450
Utilities Trans-Allegheny Interstate Line Co. Watch Pos Yes U.S. 550
Chemicals, packaging, and environmental services Verallia S.A. Positive Yes France 580
Automotive Volvo Car AB Positive Sweden 2,497
Utilities West Penn Power Co. Watch Pos Yes U.S. 250
Metals, mining, and steel Yamana Gold Inc. Positive Canada 2,050
Data as of Oct. 31, 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. This debt may be rated above or below the issuer credit rating. 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. Moreover, if a subsidiary's parent is itself a potential rising star, only the parent is counted. Source: S&P Global Ratings Research.

Related Research

This report does not constitute a rating action.

Credit Markets Research:Vincent R Conti, Singapore + 65 6216 1188;
vincent.conti@spglobal.com
Patrick Drury Byrne, Dublin (00353) 1 568 0605;
patrick.drurybyrne@spglobal.com
Research Contributor:Tanya Dias, CRISIL Global Analytical Center, an S&P affiliate, Mumbai

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