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Credit Trends: 'BBB' Pulse: Cautious Optimism Grows With No Fallen Angels And Three Rising Stars In January

No New Fallen Angels In January

There were no new fallen angels (issuers downgraded to speculative grade, 'BB+' or below, from investment grade, 'BBB-' or above) in January 2021. This and the reduced number of fallen angels in recent months have led to the ratio of fallen angels to investment-grade issuers continuing its gradual descent.

This is a welcome trend, given that in 2020, fallen angels became so broad-based that the traditional top five fallen angels sectors (financial institutions, utilities, media and entertainment, retail, and consumer products) contributed the least to the overall count in 15 years, at 31%.

Chart 1

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Chart 2

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Potential Fallen Angels Count Continues To Ease Very Slowly

Three issuers were removed from the list of potential fallen angels (issuers rated 'BBB-' with negative outlooks or ratings on CreditWatch with negative implications) in January:

  • Peugeot S.A. was removed following its merger with Fiat Chrysler Automotive N.V., now rated as Stellantis N.V.
  • Cenovus Energy Inc. was removed after its merger with Husky Energy Inc. brought the outlook to stable.
  • The Mosaic Co. was removed on the back of diminished risk to its credit metrics.

Meanwhile, two issuers were added to the potential fallen angel list:

  • CAS Holding No.1 Ltd. was added because of high leverage at its Hong Kong-based parent, PCCW.
  • Genting New York LLC is a newly rated company, matching the rating and outlook on its parent, Genting Bhd.

This brings the count of potential fallen angels to 98 (with total debt of $535 billion), well below the peak in second-quarter 2020 at 126, but still elevated compared to before 2020.

The financial institutions and media and entertainment sectors still dominate potential fallen angels. However, the sheer number of financial institutions we rate makes the proportion of potential fallen angels among investment-grade issuers much lower for financial institutions.

Chart 3

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Chart 4

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Positive Trends For Fallen Angels Gradually Press On

On a positive note, there remains only one potential fallen angel currently on CreditWatch with negative implications, compared with 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 time frame 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.

Meanwhile the cost of becoming a fallen angel continues to decline after a temporary spike at the end of 2020. Although financing conditions remain accommodative, there has been a considerable improvement for those at the cusp of investment-grade since major central banks around the world enacted significant credit market support. As such, fallen angels no longer face as steep a jump in funding costs as they would have at the peak of the pandemic.

Chart 5

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Three New Rising Stars In January

After 2020 ended with the lowest rising star count on record, three issuers became rising stars in January (speculative-grade issuers upgraded into investment-grade). All three were due to mergers and acquisitions.

  • WPX Energy Inc. was acquired by Devon Energy and upgraded to 'BBB-' from 'BB-'.
  • Fiat Chrysler merged with Peugeot (see above) and was upgraded to 'BBB-' from 'BB+'.
  • Parsley Energy LLC was acquired by Pioneer Energy LLC and upgraded to 'BBB' from 'BB'.

Although we typically exclude issuers from rising stars or fallen angels if the ratings are withdrawn, as they were for WPX and Parsley after their respective mergers, these entities still have rated debt outstanding, and are considered by S&P Global Ratings to be core subsidiaries of their new parents.

More broadly, we expect mergers and acquisitions (M&A) to reach or exceed pre-pandemic levels in 2021 as stable sectors like technology, telecoms, and health care seek growth opportunities and depressed sectors--including energy--may see M&A transactions for defensive reasons.

Meanwhile, the count of potential rising stars (issuers with a 'BB+' rating and carrying a positive outlook or CreditWatch with positive implications) dipped to 16, with two removals and one addition. The removals were both due to M&A activity--the aforementioned Fiat Chrysler-Peugeot merger that resulted in the former becoming a rising star, and HD Supply Inc. being acquired by 'A' rated Home Depot. Finally, Netflix Inc. became a rising star after being upgraded to 'BB+' and assigned a positive outlook on the back of strong operating performance.

Related Research

Table 1

No Fallen Angels In January 2021
Date Issuer To From Sector/subsector Country Rated debt affected (Mil. US$)
12/22/2020 GKN Holdings Ltd. BB+ BBB- Automotive U.K. 1,012
12/16/2020 Innergex Renewable Energy Inc. BB+ BBB- Merchant power Canada 125
10/30/2020 FirstEnergy Corp. BB+ BBB Utilities U.S. 18,373
10/12/2020 EPR Properties BB+ BBB- Homebuilders/real estate companies U.S. 3,486
9/22/2020 Southeast Supply Header, LLC BB+ BBB- Midstream U.S. 400
9/21/2020 Minsur S.A. (Breca Mineria S.A.C. and Subsidiaries) BB+ BBB- Metals, mining, and steel Peru 450
9/9/2020 Howmet Aerospace Inc BB+ BBB- Aerospace and defense U.S. 7,182
9/3/2020 Nordstrom Inc. BB+ BBB- Retail/restaurants U.S. 3,566
8/17/2020 Accor S.A. BB+ BBB- Media and entertainment France 5,490
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. (Odebrecht 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 Jan. 31, 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.

Table 2

Potential Fallen Angels Count Stays Below 100, Only One Issuer Placed On Negative CreditWatch
'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 7,368
Utilities Abertis Infraestructuras S.A. Negative Spain Europe 21,474
Financial institutions Ally Financial Inc. Negative U.S. U.S. 18,329
Media and entertainment Amadeus IT Group S.A. Negative Spain Europe 4,859
Metals, mining, and steel ArcelorMittal Negative Luxembourg Europe 13,371
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 6,998
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 4,416
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
Telecommunications CAS Holding No.1 Ltd. Negative Yes British Virgin Islands Europe 3,393
Metals, mining, and steel Cameco Corp. Negative Canada Canada 783
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
Homebuilders/real estate companies China Jinmao Holdings Group Ltd. Negative Hong Kong Asia/Pacific 1,744
Media and entertainment Choice Hotels International Inc. Negative U.S. U.S. 1,250
Homebuilders/real estate companies Citycon Oyj Negative Finland Europe 2,364
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 607
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. 46,902
Media and entertainment Expedia Group Inc., Negative U.S. U.S. 7,040
Financial institutions FCE Bank PLC Negative U.K. Europe 7,643
Financial institutions Financiera de Desarrollo Territorial S.A. FINDETER Negative Colombia Latin America 500
Transportation FirstGroup PLC Negative U.K. Europe 1,201
Capital goods Flowserve Corp. Negative U.S. U.S. 1,907
Capital goods Fluor Corp. Negative U.S. U.S. 1,707
Media and entertainment Genting New York LLC Negative Yes U.S. U.S. 400
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 2,551
Media and entertainment ITV PLC Negative U.K. Europe 2,065
Utilities Indigo Group S.A. Negative France Europe 2,399
Media and entertainment Informa PLC Negative U.K. Europe 2,865
Midstream Inter Pipeline Ltd. Negative Canada Canada 3,895
Media and entertainment InterContinental Hotels Group PLC Negative U.K. Europe 2,893
Financial institutions Intercorp Financial Services Inc. Negative Peru Latin America 600
Media and entertainment JCDecaux S.A. Negative France Europe 2,369
Sovereign Kingdom of Morocco Negative Morocco Eastern Europe/Middle East/Africa 8,894
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 1,154
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 2,035
Capital goods Metso Outotec Oyj Negative Finland Europe 850
Consumer products Molson Coors Beverage Co. Negative U.S. U.S. 7,372
Automotive Nexteer Automotive Group Ltd. Negative Cayman Islands U.S. 250
Automotive Nissan Motor Co. Ltd. Negative Japan Asia/Pacific 16,633
Financial institutions Nova Ljubljanska Banka D.D. Negative Slovenia Europe 292
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. 3,567
Financial institutions Prospect Capital Corp. Negative U.S. U.S. 5,977
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 29,882
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 44,628
Oil and gas SK Innovation Co. Ltd., Negative Korea Asia/Pacific 500
Media and entertainment SKYCITY Entertainment Group Ltd. Negative New Zealand Asia/Pacific 340
Transportation Stagecoach Group PLC Negative U.K. Europe 549
Forest products and building materials Standard Industries Inc. Negative U.S. U.S. 5,022
Consumer products Steelcase Inc. Negative U.S. U.S. 450
Consumer products Suedzucker AG Negative Germany Europe 1,822
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. 12,082
Financial institutions Tanner Servicios Financieros S.A. Negative Chile Latin America 365
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 5,008
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 3,911
Transportation easyJet PLC Negative U.K. Europe 1,822
Data as of Jan. 31, 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.

Table 3

Three Rising Stars In January 2021
Date Issuer To From Sector/subsector Country Rated debt affected (Mil. US$)
13-Jan-2021 Parsley Energy, LLC. BBB BB Oil and gas U.S. 4,750
8-Jan-2021 Fiat Chrysler Automobiles N.V. BBB- BB+ Automotive Netherlands 25,561
7-Jan-2021 WPX Energy Inc., BBB- BB- Oil and gas U.S. 4,750
Data as of Jan. 31, 2021. 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 4

Potential Rising Stars Stood At 16 With The Inclusion Of Netflix
Subsector Issuer Outlook/Creditwatch change New to the list this month Country Debt amount (Mil. US$ )
Consumer products JDE Peet's N.V. Positive Netherlands 5,911
Financial institutions CIT Group Inc., Watch Positive U.S. 5,651
Financial institutions FleetCor Technologies Inc., Positive U.S. 3,040
Forest products and building materials PulteGroup Inc., Positive U.S. 2,997
Forest products and building materials Smurfit Kappa Group PLC Positive Ireland 2,126
High technology Advanced Micro Devices Inc. Watch Positive U.S. 1,305
Homebuilders/real estate companies Lennar Corp. Positive U.S. 5,000
Homebuilders/real estate companies MDC Holdings Inc. Positive U.S. 900
Homebuilders/real estate companies Shimao Group Holdings Ltd. Positive Cayman Islands 2,100
Insurance Magellan Health Inc. Watch Positive U.S. 400
Media & Entertainment Netflix Inc Positive Yes U.S. 16,180
Metals, mining & steel Gold Fields Ltd. Positive South Africa 1,000
Metals, mining & steel Yamana Gold Inc. Positive Canada 1,800
Transportation Sovcomflot PAO Positive Russia 750
Utilities Hrvatska Elektroprivreda d.d. Positive Croatia 550
Utilities Vistra Corp. Positive U.S. 10,198
Data as of Jan. 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. 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 Contributor:Lyndon Fernandes, Mumbai;
lyndon.fernandes@spglobal.com

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