Rising Star Bond

Rising Star Bond is a company or bond that is a relative newcomer to the debt capital markets, with little or no debt repayment history, which makes it difficult to assess its creditworthiness. Despite the lack of history, the company's activities are quite attractive to certain groups of investors. However, due to the low credit rating, the company's bonds are often considered high-risk and, therefore, should offer a premium yield. Identifying Rising Star bonds at the right stage of the market cycle can be very beneficial. A rating upgrade typically reflects an improvement in the company's condition, which means that the corporation is more likely to be able to meet its financial obligations.

If Rising Star continues to improve the quality of its credit portfolio and reaches the required level of regulatory requirements, its bonds will be upgraded to investment grade. At this level, the risk of default is relatively low. Bonds with a rating slightly higher than BB - something like BBB or A3 - indicate a relatively safe investment.

When a company receives a rating that is considered an investment grade, it means that its prospects for obtaining financing improve, as it now has access to all those investors whose portfolios cannot withstand the additional risk they would add if these bonds were still junk bonds. This can often lead to increased demand for the company's bond issue, which can also affect the rise in the price of the bond.

Historically, Rising Stars have come almost twice as often from the Fallen Angels market than from the broader HY market.