Fallen Angels Tumble at Fastest Rate Since Crisis, Moody's Says

  • In first quarter, 51 companies cut to junk; 45 in all 2015
  • `We expect the number to increase' under commodities pressure

More companies lost their investment-grade ratings in the first three months of 2016 than in any full year going back to at least 2009, according to Moody’s Investors Service, and the number is only expected to increase.

Of the 51 global non-financials that tumbled into junk during in the first three months of the year, 28 of the so-called fallen angels were Brazilian companies that got downgraded after the nation lost its investment-grade rating in February, according to a Wednesday note from Moody’s. In 2015, there were a total of 45 fallen angels.

And, thanks to the lingering commodities rout, the ratings company expects the number of fallen angels to keep growing this year.

"The downgrade of Brazil’s sovereign rating flushed out a large portion of the potential angels from the prior period," said Mark Stodden, Moody’s senior credit officer. The number of companies that are on the cusp of either investment- or speculative-grade remains high, he said, "and we expect the number of fallen angels to increase throughout the year."

Last quarter, a total of 34 companies moved into that so-called crossover zone, for a total of 72 as of March 31. Of those, 59 are potential fallen angels (rated Baa3 on review for downgrade or with a negative outlook) compared with only 13 potential "rising stars" (Ba1 on review for upgrade or with a positive outlook).

Listed among the potential fallen angels are Barrick Gold Corp., Noble Energy Inc. and Ambev SA, the only Brazilian issuer that retains an investment-grade rating, according to Moody’s. Lear Corp. is among the potential rising stars.

Total debt for those potential fallen angels was $265 billion as of March 31, with non-U.S. issuers representing 80 percent of the total, Moody’s said. That’s up from $234 billion at the close of 2015.

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