Which companies (including other debt issuers and governments) are poised to shed their speculative-grade credit ratings and join the investment-grade club? We at Standard & Poor's Ratings Services update monthly the list of credit issuers that become what we call rising stars -- those whose credit ratings are raised to investment grade (BBB- and above), from speculative grade (BB+ and below). We also tally those companies poised to make the leap in the future.
Why is an investment-grade rating so important? Ratings play a critical role in determining how much companies and other entities that issue debt have to pay to access credit markets -- i.e., the amount of interest they pay on their issued debt. The threshold between investment-grade and speculative-grade ratings has important market implications for issuers' borrowing costs.
Indeed, the cost of capital decreases sharply when an issuer crosses the rising-star threshold. The 48% average reduction in borrowing costs in the 12 months ended Mar. 31, 2006, from the BB to the BBB rating category is the greatest between any two contiguous rating categories. The bottom line: Keeping track of entities with rising-star potential is important for investors, especially bondholders, who would experience a capital gain on the debt securities they own if their holdings were upgraded.
Which issuers have achieved rising-star status, and had their ratings moved up to investment grade, thus far in 2006? Year-to-date though Apr. 12, 13 rising stars with debt worth more than U.S. $21.2 (€17.5) billion were recorded globally,more than double the volume reported a month earlier owing to the upgrades of ABB and J.C. Penney.
Here's the list of those issuers that have moved to investment grade in 2006: