Potential limited for S&Ps global rising stars

Potential limited for S&Ps global rising stars
Our Corporate Bureau
15 June 2002
New York: Amid a modest and uneven economic recovery, rising stars (an issuer whose credit rating rises to triple-B-minus and above from double-B-plus and below, hence making the move to the investment-grade rating category from the speculative-grade rating category) have proved increasingly difficult to find, says a Standard & Poors (S&P) study.

Globally, rising stars this year are poised to surpass last year in terms of number and dollar volume, possibly accounting for the first increase in six years. However, over half of this years rising stars are due to Februarys sovereign upgrade of Mexico.

"At the other end of the spectrum, the US has had only four rising stars this year. At this rate, the annual total of US rising stars could remain below the record low of 15 logged during full-year 1991, during the last recession," says Diane Vazza, S&Ps head of Global Fixed Income Research.

Despite the low count, the affected dollar value of US outstanding is expected to remain in line with the previous year. In the near term, the potential number of rising stars in the US should remain limited with outlooks on US corporate ratings 32 per cent negative, 60 per cent stable, 1 per cent developing, and only 7 per cent positive. Among its peers, healthcare shines the brightest.

S&P identified 20 issuers around the globe with rising star potential, only one more than identified in April. Year-to-date, 17 issuers, with bonds outstanding totaling $28.4 billion, have risen to investment-grade from speculative-grade.

In contrast, 30 issuers, with bonds totaling $47 billion, have fallen to speculative-grade from investment-grade. In the past 15 years, there have been 421 ($336 billion) rising stars and 418 ($434 billion) fallen angels.

Japanese issuer Nissan Motor Company ($5.5 billion) and Swedish issuer Alfa Laval AB ($0.2 billion) were the only companies to join the ranks of global rising stars since the last commentary on 29 April 2002. Of the remaining 16 rising stars this year, most were due to the sovereign upgrade of Mexico (10 issuers on $12.8 billion) on 7 February 2002.

There were also four US ($9.8 billion) issuers and one each from Korea ($0.3 billion) and Hong Kong ($0.1 billion). By sector, there were 13 industrial ($24.9 billion), one telecommunications ($2.5 billion), one banking ($0.3 billion), one infrastructure finance ($0.1 billion), one utility ($0.8 billion), and one sovereign. The largest were Petroleos Mexicanos ($7.8 billion) and HCA Inc ($7.8 billion).

Currently, S&P has identified 20 issuers globally that are rated double-B-plus and are on CreditWatch with positive implications or are rated double-B-plus and have a positive outlook. This rating designation and CreditWatch/rating outlook is the highest in the speculative-grade category. Five global issuers rated double-B-plus/WatchPositive are industrial, with one each in banking and utilities. Five are US issuers, one is German and one British.

Of the 13 global issuers rated double-B-plus/Positive, nine are industrials and four are banking. Within the industrials sector, four are from health care, and one each from capital goods, chemicals, packaging and environmental services, metals, mining and steel, oil and gas exploration and production, and transportation.

The presence of multiple healthcare issuers on the potential rising stars lists is not surprising given the sub-sectors relative strength with a current Outlook/CreditWatch distribution of 20 per cent positive, 62 per cent stable, and 18 per cent negative. Seven are US issuers, three are from Canada, and one each from China, the Czech Republic, and Korea.

Since S&Ps last commentary on rising stars, one issuer (Nissan Motor Company) on the potential lists was upgraded to investment-grade, and one issuer (Golden State Bancorp Inc) which had a positive Outlook is now on CreditWatch with positive implications.