Number Of Potential Fallen Angels Down From Last Year
S&P, Dec 7
The count of fallen angels in 2005 has outpaced the level a year ago, but the number of entities at risk of declining into fallen-angel territory is lower than last year, according to a report released today by Standard & Poor's Ratings Services. Year to date, fallen angels still lag rising stars, with the gap between them at 20--the highest margin since 1997. Through Dec. 6, 2005, 39 fallen angels--issuers that were downgraded to speculative grade ('BB+' and lower) from investment grade ('BBB-' and higher)--were recorded on rated debt worth US$514.1 (€436.2) billion compared with 24 recorded for the same period of 2004 on debt worth US$53.1 (€45.0) billion. The article, titled "Global Potential Fallen Angel Report," states that as of Dec. 6, 2005, there were 46 entities globally at risk of becoming fallen angels, with rated debt totaling US$83.6 (€71.0) billion. This is three fewer than the 49 reported last month and four fewer than the number reported a year ago. Of the total, the sectors most vulnerable to generating fallen angels by count are high technology, media and entertainment, oil and gas exploration and production, and retail/restaurants. Moreover, of the 46 potential fallen angels, 21 are members of major Standard & Poor's equity-based indices.
"Although fallen angels are relatively rare in any single year (constituting only 2.19% of the total count of investment-grade entities each year on average from 1981-2004), the behavior of entities positioned in these threshold categories bears market significance," explained Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group. The cumulative share of bonds in these threshold categories to the total outstanding is substantial, both on count and dollar bases. On a relative-value basis, fallen angels are important to investors because they outperform their peers as an asset class, albeit with greater variability. Moreover, movement between these threshold categories has important market implications for the cost of borrowing among issuers.
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