Capital Markets

10 Fallen Angel Candidates?

Bond analysts at Gimme Credit made their list, checked it twice, and released their picks for the 10 worse credit outlooks.
Stephen TaubNovember 29, 2006

Independent bond research firm Gimme Credit has singled out the 10 investment grade bond issuers as having the worst credit outlook and being the most likely to underperform. Carol Levenson, director of research at Gimme Credit, said in a press release that these companies share one or all of the following traits: tight spreads, event risk, and deteriorating fundamentals.

The 10 companies are: D.R. Horton, Commonwealth Edison, Boston Scientific, Equitable Resources, Federated Department Stores, France Telecom, Hershey, iStar Financial, Phelps Dodge and Telecom Italia. Several companies, such as D.R. Horton, are vulnerable because they have been identified as candidates for a leveraged acquisition, which frequently results in a credit downgrade, the research firm points out. “Even leaving aside LBO [leveraged buyout] event risk, DHI bonds may underperform if the housing slump persists, considering the company’s large exposure to land inventory purchased in recent years,” says Gimme Credit analyst Katheen Shanley, in the announcement.

How prescient is Gimme Credit? The research firm points out that a number of previous investment grade companies singled out on its semi-annual “Bottom Ten” list subsequently imploded or filed for bankruptcy, including WorldCom, UAL, Kmart, Comdisco, Dana, Delphi, Conseco, Dynegy, and Mirant. In fact, two companies from its prior list—Wendy’s and Tyson Foods—have been downgraded to junk and one—Kinder Morgan—announced an LBO.