OREANDA-NEWS. Fitch Ratings expects crossover credits and 'BB' issuers in the European high-yield bond market to lead the recovery in new issuance for 2016. Monetary policy stimulus will support the rollover of maturing liabilities. This, together with equity market recoveries and strong cross-border M&A volumes, will allow corporate managers more tactical discretion to address longstanding sectoral challenges such as global excess capacity, technological disruption and weak pricing and volume trends.

Fitch has released its latest bi-annual EMEA Fitch 50 report, offering in-depth analysis on crossover credits (rated between 'BBB-' and 'BB+') and those in the 'BB' rating category. This is to help global high yield investors identify the key rating drivers for issuers downgraded to speculative grade (fallen angels) and upgraded to investment grade (rising stars).

This latest report complements the ''B+' and Below' EMEA Fitch 50 issued in October 2015 and draws more distinctions between the cohorts of the European high-yield bond market. The report includes 50 case studies discussing rating drivers for select crossover credits including notable fallen angels such as Anglo American Plc, ArcelorMittal SA, ThyssenKrupp AG and Tesco Plc. Each case study examines the causes of recent rating actions, and what it would take for each company to either be upgraded to investment grade, or downgraded to speculative grade.

Since 2010, 19 Fitch-rated EMEA speculative-grade corporates have been upgraded to 'BBB-' or above. Improvements in operating performance, business profile or cost-saving programmes have boosted cash generation and reduced the leverage of companies such as Pernod Ricard, GKN Holdings, Renault and Taylor Wimpey. Industry consolidation and the need to provide wider product offerings drove M&A activity in the building materials and telecoms sectors, leading to the upgrades of Lafarge SA, Cableurope and Kabel Deutschland.

However, slowing growth in emerging markets (EMs), commodity price weakness and limited rating headroom for many EMEA corporates amid an anaemic European recovery suggest that rating risk remains weighted to the downside. 2015 witnessed a widening in the disparity between EM and developed European corporates, and faltering EM growth has now become the greatest risk to corporate ratings.

Over the last year, downgrades in the Fitch rating portfolio have dominated upgrades across all corporate sectors. The differential between upgrades and downgrades has also reached its widest level since 2011, driven by challenging conditions across emerging markets and low commodity prices. These trends are likely to maintain rating pressure on EMEA corporates in 2016.

The buffer that corporates have to absorb weaker performance at their current ratings remains thin, although it is slowly improving. At end-2015 median headroom to the tightest downgrade guidelines for EMEA corporates was 5.1% compared with just 3% in 2014.