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|  | DECEMBER 19, 2005
 S&P RATINGS' RISING STARS Making the Investment GradeS&P's quarterly look at "rising stars" -- companies whose credit ratings are about to change for the betterWhich companies -- and other debt issuers, including governments -- are poised to shed their speculative-grade credit ratings and join the investment-grade club? Each quarter, we at Standard & Poor's Ratings Services update 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). And 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. MOVIN' ON UP. Indeed, the cost of capital decreases sharply when an issuer crosses the rising-star threshold. As of the end of October, 2005, there was an average reduction in borrowing costs of 44% when an issuer moves from the BB to the BBB rating category. 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 in 2005? Year-to-date though Dec. 14, 59 rising stars with debt worth more than $114.1 billion were recorded globally, 17 more than the number recorded in the same period in 2004. Of the total, 28 rising stars are members of S&P's equity-based indexes. Here's the list of those issuers that have moved to investment grade in 2005:
*An S&P equity-based index member. Data as of Dec. 14, 2005. Parent companies are in parentheses. Source: Standard & Poor's Global Fixed Income Research. And what about those issuers that are ready to make the move? Potential rising stars are defined as entities that are currently rated BB+ with either a positive outlook or with ratings on CreditWatch with positive implications. As of Dec. 14, 2005, 23 rated entities were in the best position to acquire rising-star status -- the lowest number in nearly two years. Together, these entities account for $40.1 billion in rated debt. Of the 23 potential rising stars, 19 had a positive outlook, and the remaining four had ratings that were on CreditWatch with positive implications. Of the 23 issuers most likely to benefit from potential upgrades, 16 belonged to the broadly defined industrial sector, three in banking, two in utilities, and one each in nonbank financial institutions and telecommunications. Within the industrial sector, capital goods and media and entertainment had the greatest number of entities (three) likely to attain rising-star status. The capital-goods sector continues to benefit from expectations of continued moderate economic growth and gains in industrial production. Of the three issuers in this sector, one was a U.S.-based issuer, one from Switzerland, and one based in France. Two of the media and entertainment entities poised for an upgrade were located in the U.S. and one in Sweden. Within the banking sector, savings-and-loan entities also had three entities most likely to become rising stars. All three were based in the U.S. Elsewhere, Europe had five (one each in France, Germany, Sweden, Switzerland, and Britain), the Asia/Pacific region had three issuers (one each in Japan, Korea, and Thailand), Canada had one, and Latin America (Chile) had one. Three of the issuers on the list are from emerging-market countries. In total, nine entities were members of various Standard & Poor's equity indices. Of the U.S. entities on the potential rising stars list, five were S&P 500 index constituents, and two belonged to the S&P MidCap 400. There were two constituents from the S&P Europe 350. Here's the current list of potential rising stars:
*An S&P equity-based index member. Data as of Dec. 14, 2005. Parent companies are in parentheses. Source: Standard & Poor's Global Fixed Income Research  From Standard & Poor's Ratings Services All of the views expressed in this research report accurately reflect the research analyst's personal views regarding any and all of the subject securities or issuers. No part of analyst compensation was, is or will be, directly or indirectly related to the specific recommendations or views expressed in this research report. Standard & Poor's Regulatory Disclosure Any advice, analysis, or recommendations contained in articles labeled "Insight from Standard & Poor's" reflect the views of Standard & Poor's, which operates separately from and independently of BusinessWeek Online. It is possible that BWOL may from time to time publish information that is not consistent with advice, analysis, or recommendations that are published by Standard & Poor's. Standard & Poor's and BusinessWeek Online are each units of The McGraw-Hill Companies, Inc.
BW MALL
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