Rating History and the Rating Dynamics of Fallen Angels, Rising Stars, and Big Rating Jumpers

Abstract

Using samples from Standard & Poor's CreditPro 2005 dataset, we estimate models of rating migration subsequent to firms that issue bonds becoming fallen angels (FAs), becoming rising stars (RSs), or experiencing historical rating jumps of at least two notches (big rating jumpers). Comparator issuers (peers) are identified for the foregoing groups and rating transition models are estimated for these peers. The results suggest that different models of rating transition may be needed for fallen angels, rising stars and big jumpers relative to their peers. In general, the impact of rating history on the probability of a rating transition varies according to the rating path that occurred prior to the current rating state.

Keywords: Survival analysis, proportional hazards, rating migration, rating history, non-Markovian behaviors, fallen angels, rising stars, big rating jumps

JEL Classification: C13, C14, C32, C34, C41, G14