Number of fallen angels drops to 51

THE NUMBER of global non-financial companies in danger of losing their investment-grade ratings, or potential fallen angels, dropped to 51 from 55 as of June 30, Moody’s Investors Service said in its quarterly Crossover Zone report.

This number, however, remained above historical levels of 30 to 40 companies, although it had been trending lower for the past seven quarters, according to the report.

The report stated that the second quarter saw debt cross from investment grade to speculative grade at a low rate versus historical levels, but faster than recent quarters. Actual fallen angels held $17 billion (R220bn) of debt in the quarter, versus $11bn during the past three quarters combined.

The report stated that in the first quarter 14 companies moved into the crossover zone – six because of fundamental credit developments, six based on sovereign-rating actions, and two due to merger and acquisition-related rating actions.

Sovereign rating actions accounted for six of the new entrants, while two were the result of mergers and acquisitions and one was due to fundamental credit issues.

Last month Moody’s downgraded South Africa’s sovereign rating and assigned it a negative outlook. This resulted in the highest number of companies entering the zone as a result of sovereign-rating actions in more than a year.

All crossover issuers were international, with two of the six downgraded as a result of sovereign-ratings actions. This included MTN Group (Ba1 stable), which held about $6bn of debt, according to the report.

Among other companies that entered the crossover zone were Airports Company SA (Baa3 NEG Baa2 – fallen angel), Barloworld (Baa3 NEG Baa3 – fallen angel), Bidvest Group (Baa3 NEG Baa2 – fallen angel), Sasol (Baa3 NEG Baa2 – fallen angel), Telkom (Baa3 NEG Baa3 – fallen angel) and Transnet (Baa3 NEG Baa2 – fallen angel).

Rating actions on several South African corporates followed the weakening of the government’s credit profile, as captured by Moody’s similar rating action on the sovereign rating in June.

Rating level

“Companies that have fallen into the lowest investment-grade rating level, and therefore could lose investment-grade status, held $247bn in debt at the end of June, down from $291bn in the first quarter and $293bn at this time last year,” said Michael Corelli, vice president – senior credit officer at Moody’s.

“About 80 percent of this debt is held by companies domiciled outside the US, and both domestic and international debt declined at about the same pace.”

The downward trajectory of debt balances seen in the second half of last year resumed in the second quarter after a spike in this year’s first quarter, according to the report. The decline was mainly a function of fewer potential fallen angels in the crossover zone.