We highlight some of the most attractive rising star opportunities among US non-financial corporates.
Jan 28, 2026
- Against a backdrop of higher-for-longer rates and elevated policy uncertainty, US rising star volume slowed in 2024 and 2025, falling below the long-term average of $34 bn after averaging well above $50 bn per year between 2021 and 2023.
- We screen over 200 mid-BB and high-BB issuers and highlight 15 with the highest upgrade probability over the next 18-24 months, combining agency outlooks with quantitative measures of leverage, free cash flow, and liquidity.
- Our analysis of close to 800 rising-star bonds shows that spread compression begins well before the rating action, with the median OAS tightening from 291 bp two years pre-upgrade to 203 bp at the time of upgrade, and continuing to compress to 170 bp over the following two years.
- Relative value versus BBBs improves significantly, as rising stars trade 112 bp wide of BBBs two years prior to upgrade but converge to within 10 bp of BBBs two years post-upgrade, creating a multi-year carry-plus-compression opportunity.
- The issuers on our list with the greatest potential for further spread compression are Carnival, TransAlta, Darling Ingredients, and Permian Resources.
Rising Stars, Falling Volume
The chart below shows the face value of BB debt in the ICE BofA US HY index that was upgraded to investment grade (IG) each year. Each bar shows the face value of the three largest rising star issuers, with the remainder grouped as ”Others”. For example, in 2023 Ford (F) was the largest rising star, with close to $39 bn of debt upgraded to HY, followed by Occidental Petroleum (OXY) with roughly $15 bn. Between 2021 and 2023, US rising star debt surged above the long-term average of $34 bn, driven by a combination of post-COVID balance-sheet repair, strong commodity cash flows, and unusually accommodative financing conditions. Since then, rising star volume has been on the decline. By 2025, annual rising-star volume had fallen back below its long-run average, reflecting a thinner pipeline of BB issuers with clear, near-term paths to investment grade.
This decline in volume matters for credit investors: fewer rising stars typically imply greater scarcity value, stronger technicals around upgrades, and more competition for bonds that are likely to cross the IG boundary.
Historically, falling rising-star volumes have coincided with periods of market stress, economic contraction, and elevated default and fallen-angel rates (e.g. 2002, 2009, 2020). In contrast, the current decline in rising-star volume is occurring in a tight-spread environment, with the spread between BB and BBB debt close to an all-time low. This suggests that the reason for the relatively low rising star volume is structural rather than cyclical: “higher for longer” rates lead to slower deleveraging, the “easy” post-COVID upgrades are done, and capital allocation has shifted from balance sheet repair to buybacks/dividends.
Rating agencies also appear to be extending the timeline for investment-grade upgrades in the face of elevated policy uncertainty, particularly around tariffs. Even where leverage and cash-flow metrics screen as consistent with low-BBB ratings, agencies are placing greater emphasis on through-the-cycle earnings and margin resilience. The result is a longer “prove-it” period, with issuers sitting on positive or stable outlooks rather than being upgraded outright. This dynamic further constrains rising-star volumes despite tight credit spreads and orderly market conditions.
Potential Rising Stars in 2026/2027
To identify the next wave of potential rising stars, we screened over 200 mid-BB and high-BB issuers to find the companies most likely to be upgraded to IG over the next 12 to 24 months. Our screen included the following sector-dependent criteria:
- Low or declining leverage – e.g. Net Debt to EBITDA trending toward or below 2.5x for most industrial, consumer and basic industry companies (with higher thresholds for utilities, infrastructure, and energy).
- Stable or improving free cash flow, with a clear path to sustained debt reduction.
- Meaningful liquidity, measured by cash relative to total debt.
- Positive or stable rating-agency outlooks, incorporating commentary from S&P, Moody’s, and Fitch where available.
The table below contains 15 issuers that meet most – and in many cases all – of the above criteria. The last column of the table indicates our level of conviction that the rising star upgrade will happen within the next 18 to 24 months, which combines the rating agency outlook with the degree to which the issuer has the fundamentals of an investment grade credit.
Rising Star Spread Dynamics
A large part of what makes rising stars attractive to credit investors is that they reprice over a relatively long time period, allowing investment teams to find a suitable entry point.
To illustrate this extended repricing path, we tracked the option-adjusted spreads (OAS) of 785 rising-star bonds from two years prior to upgrade through two years after the upgrade, as well as their spread relative to the BBB index. Across the full sample:
- The median OAS tightened from 291 bp two years before upgrade to 203 bp in the month of upgrade.
- Post-upgrade, spreads continued to grind tighter, reaching 170 bp two years later.
The relative move versus BBBs is also striking. Rising stars traded at a median 112 bp over BBBs two years before upgrade. By the time the upgrade occurred, much of that gap had already compressed, and two years after upgrade, rising stars traded at just 6 bp over BBBs.
The implication is clear: the bulk of excess return accrues before the rating action, as fundamentals improve and the market begins to price in the migration. For investors focused on spread compression rather than carry alone, identifying credible rising stars early remains one of the most consistent sources of excess return in credit.
Revisiting our list of potential rising stars, at the time of writing most of our high-conviction credits are already trading close to mid-BBB levels. The issuers with the greatest potential for further spread compression are Carnival, TransAlta, Darling Ingredients, and Permian Resources.
The content published by QML Solutions is for informational and educational purposes only and should not be construed as investment advice, a recommendation, or an offer to buy or sell any security or financial instrument. The views expressed are solely those of the authors and are subject to change without notice. While we strive for accuracy, we make no guarantees about the completeness or reliability of any information presented.Any investment decisions should be made in consultation with a qualified financial advisor and based on your own objectives, financial situation, and risk tolerance. QML Solutions and its authors disclaim any liability for any direct or consequential loss arising from reliance on the information provided.