欧洲信贷战略 ： 新星主导将终结

Credit StrategyEuropean CreditStrategy EuropeUnited Kingdom Rising Star Dominance to end Cem Keltek The wave of Rising Stars has not only continued, it has accelerated over the last 6months. With a few large cap structures joining in, we have seen another €32bn offormer HY-bonds joining IG-indices and further compounding already favourabletechnicals in the HY space.But that should be as good as it gets. While dwarfedby Rising Stars, Fallen Angel volumes have also picked-up (€11bn in the last 6m).And this is without a major contribution from Real Estate bonds, €8.4bn of whichremain very close to the HY threshold. European Credit Strategist+49-69-910-48370 Steve CaprioHead of European and US Credit Strategy+44-20-754-16176 Carlo GeatResearch Analyst+44-20-754-59511 The rush of Rising Stars has alsoreduced the number of candidatesthat weconsider very close to being upgraded to just €13bn and they are nowoutnumberedmore than 2:1 by equivalent Fallen Angel candidates(€28bn). While an improvingEuropean growth outlook should help corporate fundamentals, we doubt that thiswill be enough to turn the tide. More than half of imminent Fallen Angel candidatesoriginate in Utilities or Real Estate - both sectors with more to lose in a higher forlonger interest rates environment than to gain in a mild cyclical upswing. We expect the Fallen Angel/Rising Star balance to turn from a tailwind into amoderate headwind in coming months. With HY net supply also likely to graduallypick-up (see here)peak technical support for €HY-spreads should be alreadybehind us. We have attached our Outlook/Rating Watch adjusted list of the topFallen Angel / Rising Star candidates. An unwavering wave of Rising Stars... Rising Star volumes have continued to grow this yearand the €13.1bn in Marcheven marked the highest monthly Rising Star notional we have on record. That wasmostly thanks to €8.6bn of Cellnex bonds moving to IG with the April indexrebalancing (Figure 1). But even now there are two Rolls Royce Bonds (€1.3bn) thatare earmarked to move up to IG with the next index adjustment. Fallen Angels volumes have also picked upwith March marking the highest FallenAngel total since May'23. Also there, things were driven by a single issuer thoughwith €3.7bn of ELO bonds constituting the entire count. And similarly to the RisingStar backdrop, there is currently a €500mn SAUR bond already earmarked to moveto HY at the beginning of May. Overall however,Rising Stars outnumbered Fallen Angels by far and thatcontinues to be true for almost any time horizon since the beginning of 2022. In2022, Rising Stars outpaced Fallen Angels by €17.4bn, 2023 saw an €12.9bn excessof Rising Stars and ytd we already stand at €13.6bn. Particularly ytd this hascompounded an already favourable technical backdrop for €HY and (next to inflowsand still low net supply) arguably helped HY-spreads to keep some composuredespite an increasing number of distressed issuers (seelast week's €-Credit CotWfor more on this). ...and changed Fallen Angel Dynamics Below the surface, there is an noteworthy trend in Fallen Angel dynamics however.Much of last year's Fallen Angel conversation revolved arounda potentially hugewave of Real Estate namesthat could not be absorbed by the HY-investor base. Butas we suggested in Aug'23 those fears have proven largely overblown. Real Estatenamesstill provided the majority of last year's Fallen Angel volumes,butdowngrade pressure in the sector has eased since H2'23 and the vast majority of this year's Fallen Angels originate from the Non-Financials space (Figure 2). Rising Stars were driven by larger cap-structures (e.g Lufthansa, Cellnex) andstemmed from a variety of sectors. What has remained arelatively constant driverof Rising Star volumes howeverwere Banks, with three peripheral lenders joiningthe pack in February and March (Banco BPM, Banco de Sabadell, Iccrea Banca). Not many Rising Star candidates left behind There is a flip-side to the Rising Star boom however. As we already flagged in our2024 Outlook the overhang of Rising Stars had significantly reduced the number ofCandidates very close to being upgraded to IG back then. But imminent Rising Starcandidates1 still outstripped their Fallen Angel counterparts by €5bn back then.The latest wave has accelerated the trend and shifted the balance radicallyhowever. Almost all Rising Stars came from imminent upgrade candidates we hadidentified and while there have been a few new additions, there areonly €13bn ofthose candidates left. At the same time, theIG notional most exposed to FallenAngel risks has increased to €28bn(Figure 3 and 4). Figure 4: ...as the surge in Rising Stars over the last 6mleft few candidates A better economic backdrop should cushion... Granted, with the economic backdrop remaining benign over the last few monthsand improving now,ratings should remain supportedin aggregate. That is alsoevident when looking at the BBB and BB rating drift which has stayed posit