Fallen angel debt nearly doubles in 2007, S&P says

By Jennifer Chiou

New York, Dec. 11 - Standard & Poor's said in a report that as of Dec. 5, 36 fallen angels have been recorded in 2007, affecting rated debt worth $127.1 billion.

In the same period a year ago, 44 issuers were downgraded to speculative grade, with $66.4 billion of rated debt, the report noted.

"Globally, fallen angels have outpaced rising stars in the year to date, like the trend observed in 2006, but in contrast with the trend seen in 2004 and 2005," Diane Vazza, head of S&P's global fixed income research group, said in an agency release.

"This trend is attributable to crossover activity in the U.S., where fallen angels have exceeded rising stars each year since 2005."

According to the report, the sectors most vulnerable to generating fallen angels by number of issuers are forest products and building materials, high technology and transportation.

By debt volume, the lineup among potential fallen angels is the forest products and building materials, media and entertainment, and utility sectors, S&P added.

"Financial market turbulence temporarily put a lid on M&A activity, which has played a dominant role in the crossover of companies from investment grade to speculative grade this year," Vazza said in the release.

"This month, the share of fallen angels (by number of issuers) associated with acquisition-related activity inched down to 47% from 49% a month ago. As of Dec. 5, 2007, 27% of companies identified as most likely to lose their investment-grade status were affected by risks from acquisition-related activity, including LBOs, compared with 53% in our midyear report."

On Nov. 26, the agency reported that eight new issuers had been downgraded to speculative grade from investment grade since the previous month, seven of which were based in the United States and five of which were from the housing-related segment, which has experienced exceptional volatility in recent months.

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