U.S. crossover credit monitor shows fallen angel risk remains above rising star pipeline
Shifting conditions in the U.S. corporate credit market are keeping pressure on issuers that sit near the boundary between investment grade and high yield. CreditSights' third-quarter monitor shows the pool of prospective fallen angels still exceeds that of rising stars, even as upgrades continue to outpace downgrades.
Highlights
- CreditSights' Q3 U.S. Fallen Angel/Rising Star Monitor shows potential fallen angels still outnumber rising stars, with new issuers expanding sector risks.
- Overall ratings migration has slowed, but upward rating moves continue to outpace downgrades, while issuer-specific pressures drive divergent trends.
- Crossover credit spreads are widening and yields rising, improving breakeven protection but exposing excess returns to further pressure amid riskier conditions.
Third-quarter monitor flags crossover risks
As reported by CreditSights, the latest U.S. Fallen Angel/Rising Star Monitor evaluates potential rating transitions across the corporate crossover market and points to changing risks within both investment grade and high yield credit.The report says prospective fallen angels continue to represent a larger pool than rising stars. It also identifies several new issuers, expanding the range of sectors facing closer scrutiny for possible ratings migration.
CreditSights says overall ratings migration has slowed, while upgrades remain more prevalent than downgrades. Even so, some rating categories are seeing greater movement, with issuer-specific pressure continuing to drive divergence across the market.
Valuations reset as spreads widen
Repricing in the market is widening spreads and lifting yields across crossover credit, reshaping relative valuations as economic conditions and investor risk sentiment change.The report adds that breakeven measures indicate greater protection against potential further increases in yields. At the same time, excess returns remain vulnerable to additional spread widening, underscoring a less forgiving backdrop for lower-rated corporate borrowers and investors assessing crossover opportunities.
In our earlier article, we covered Fitch’s affirmation of JSC Navoi Mining and Metallurgical Company’s 'BB' foreign-currency issuer rating with a Positive Outlook, highlighting the company’s strong operating profile and low leverage. We also noted that the miner’s credit trajectory remains tightly linked to Uzbekistan’s sovereign credit conditions, with weak liquidity and the domestic operating environment acting as key constraints on further rating upside.
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