Bangkok--19 Jan--Standard & Poor's
A study of the CreditWatch status and outlook of 1,190 U.S. high-yield issuers identified 136 issuers as potential upgrade candidates, according to an article published today by Standard & Poor's. The article, which is titled "U.S. High-Yield Prospects," says that although 55% of issuers present a stable profile, 31% are seen as subject to downgrade risks. The proportion subject to downgrade is 1% higher than in November.
"Firms in media and entertainment, consumer products, retail and restaurants, health care, and automotive are susceptible to the highest downgrade risks," noted Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group. "Firms in the aerospace and defense, utility, high tech, and chemical, packaging, and environmental services sectors have the greatest upgrade potential."
The U.S. high yield market continues to thrive in an environment of ample liquidity and elevated risk appetite. Spreads have narrowed, yields look subdued, and Merrill Lynch data shows that total returns tallied up to a sizeable 11.77% in 2006 versus only 2.74% in 2005; distressed debt was the winner with a hefty 42.80% gain and fallen angels provided a tidy 15.2% return. "Although long-term interest rates should continue to hover at current levels, subdued profit growth implies an increase in the effective interest burden on firms," Ms. Vazza added. "Although spreads could remain range-bound in the near term, these should gradually widen during the second half of the year."
This implies that price appreciation is unlikely to boost total returns as in 2006, which will have difficulty even matching their 8.5% coupon. Fallen angels provide a higher return in the long run, versus original high yield issues.
The report is available to subscribers of RatingsDirect, the real-time Web-based source for Standard & Poor's credit ratings, research, and risk analysis, at www.ratingsdirect.com . If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-9823 or sending an e-mail to [email protected] . The report is also available at www.sandp.com/gfi , listed under Global Fixed Income Research. If you have not previously registered with the site, you will need to do so to access this material. Registration requires minimal information and is free. Members of the media may request a copy of this report by contacting the media representative name provided.
Media Contact:
Mimi Barker, New York (1) 212-438-5054, [email protected]
Analyst Contacts:
Diane Vazza, New York (1) 212-438-2760