A rising tide of negative ratings momentum in the past few years has resulted in the number of rising stars recorded globally being outstripped by the number of fallen angels in each year since 1999.
A prolonged period of sub-par economic growth combined with widespread credit quality degradation has dampened the occurrence of rising stars. Year-to-date, six rising stars have been recorded, Diane Vazza, head of Standard & Poors Global Fixed Income Research group, said. Looking ahead, the incidence of rising stars should start to inch upward gradually, assuming the trough in the current credit cycle has already occurred, she added.
As of May 19, 21 rated entities were best placed to acquire rising star status, six more than the 15 recorded in Standard & Poors last report, published on April 3. Six issuers have made the lzeap to speculative from investment grade year to date, affecting rated debt worth $6.1 billion. The number of rising stars has been on a steady decline since its most recent peak in 1997, which is not surprising in light of the credit and macroeconomic performance during the intervening period.
In 2002, a total of 30 rising stars were recorded on debt outstanding worth $39.5 billion, of which one-third were affected by the sovereign upgrade of Mexico. Geographically, the US recorded the highest count of rising stars, but that is largely attributable to a bigger rated population size. Five of six rising stars were recorded in the industrial category, with the remaining action in the banking sector. Within industrials, homebuilders/real estate was the only subsector that recorded two rising stars. As of May 19, 21 rated entities showed the greatest propensity to acquire rising star status. These are issuers currently rated BB+ either with positive outlooks or on CreditWatch with positive implications.
Of the 21 entities most likely to become rising stars, 16 entities were listed with positive outlooks with the remaining five on CreditWatch with positive implications. Seventeen of 21 entities belonged to the industrial sector, according to Standard & Poors.