Number of fallen angel candidates rises, S&P says

New York, April 19 - The number of potential fallen angels rose in the past month to 48 from 41, Standard & Poor's said Monday.

The rating agency noted that the increase comes even as the pace of downgrades to junk from investment grade has decelerated notably in the past month.

So far this year, seven companies with $6.7 billion of debt have been cut to speculative grade by S&P. It said that figure is the lowest since 1998 and well below 23 seen in the same period of 2003 and 21 in the same period of 2002. This year's total so far of seven includes four from the United States, two from Europe and one from Latin America.

"The sectors most vulnerable to experiencing potential fallen angel activity are high technology and media & entertainment," said Diane Vazza, head of S&P's fixed-income research group, in a news release.

These two groups accounted for seven issuers each out of the total 48.

"Even though the high technology sector is starting to emerge from a cyclical bottom, credit trends will maintain a negative bias as some firms continue to realign cost structures to new sales levels to achieve sustainable profitability," Vazza said.

"Within the high tech sector, software services providers, electronics distributors, and semiconductor sectors had the biggest potential for potential fallen angel activity. Within the media & entertainment sector, one area of vulnerability is the global music market.

"Some entities from the lodging subsector were also vulnerable, reflecting the fact that the industry recovery is still in its infancy. The business services subsector also remains challenged, despite the modest economic rebound. Other broad sectors that were also vulnerable include the insurance, consumer products, and utility sectors (five issuers each)."

S&P's list of fallen angel candidates is made up of issuers rated BBB- with either negative outlooks or which are on CreditWatch negative.

The United States accounted for 26 of the total, the biggest share due to the greater number of rated companies. Asia had 10 entries, Europe six, Canada five and Latin America one.

Compared to a month earlier, one of the candidates was removed after being upgraded and eight issuers were added, five from the United States, two from Japan and one from Canada.

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