Fallen angels number continues rise, S&P says

By Jennifer Chiou

New York, Sept. 11 - The number of fallen angels has continued to grow, Standard & Poor's said in a report titled "Global Potential Fallen Angel Report."

Through Sept. 7, the agency said 34 fallen angels were recorded on rated debt worth $39.6 billion, an increase of two from last month's report.

The August-released report noted 32 fallen angels linked to rated debt worth $39 billion, up seven from the prior month's report.

S&P said 42 entities throughout the world are at risk of becoming fallen angels, with rated debt totaling $72.6 billion, unchanged from last month.

"Fallen angels have overtaken rising stars by a margin of 13 entities in the year to date as of Sept. 7, a reversal of the pattern seen in full years 2004 and 2005," Diane Vazza, managing director and head of S&P's global fixed-income research, said in the report.

The sectors most vulnerable to generating fallen angels by count are utilities, media and entertainment, insurance, telecommunications, retail and restaurants, and consumer products, according to the report.

The report added that 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 to 2004, the behavior of entities positioned in these threshold categories bears market significance.

S&P said that on a relative-value basis, fallen angels are important to investors because they outperform their peers as an asset class, albeit with greater variability, noting that movement between these threshold categories has important market implications for the cost of borrowing among issuers.

Fallen angels are issuers that are downgraded to speculative grade from investment grade.

Based on rated debt volume, TXU Corp., a U.S. utility company, is the largest potential fallen angel with more than $15 billion of rated debt.

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