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Fallen Angel

What is a 'Fallen Angel'

A fallen angel is a bond that was given an investment-grade rating but has since been reduced to junk bond status due to the weakening financial condition of the issuer. It is also a stock that has fallen substantially from its all-time highs. There is a fine line between fallen angel bonds and value stocks, which have the potential to recover from short-term challenges, and those that are headed straight toward bankruptcy.

Explaining 'Fallen Angel'

Fallen angel bonds, which can be corporate, municipal or sovereign debt, have been downgraded by a rating service such as Standard & Poor’s, Fitch or Moody’s Investors Service. The primary reason for downgrades is a decline in revenues, which jeopardizes issuers’ capabilities of servicing debt. When declining revenues are combined with expanding debt levels, the potential for a downgrade increases dramatically.

Examples of Fallen Angels

For example, an oil company that has reported sustained losses over several quarters due to falling oil prices may see its investment-grade bonds downgraded to junk status due to increasing risk of default. As a result of the downgrade, the prices of the company’s bonds decline and yields increase, making the debt attractive to contrarian investors who see low oil prices as a temporary condition.


Further Reading


Fallen angels and price pressure
jfi.pm-research.com [PDF]
… Bank Exposure Fallen Angel % of Tier 1 PNC Bank 2,663 7.34% US Bancorp 2,838 6.80% Comerica Inc 288 4.16% Zions Bancorp 176 2.81 … Fargo & Co 1,547 0.97% JP Morgan 1,184 0.55% Total 15,147 3.08% Table 4: US banks' exposure to fallen (energy) angels …

Forced selling of fallen angelsForced selling of fallen angels
jfi.pm-research.com [PDF]
… Bank Exposure Fallen Angel % of Tier 1 PNC Bank 2,663 7.34% US Bancorp 2,838 6.80% Comerica Inc 288 4.16% Zions Bancorp 176 2.81 … Fargo & Co 1,547 0.97% JP Morgan 1,184 0.55% Total 15,147 3.08% Table 4: US banks' exposure to fallen (energy) angels …

Business angel investment activity in the financial crisis: UK evidence and policy implicationsBusiness angel investment activity in the financial crisis: UK evidence and policy implications
journals.sagepub.com [PDF]
… Bank Exposure Fallen Angel % of Tier 1 PNC Bank 2,663 7.34% US Bancorp 2,838 6.80% Comerica Inc 288 4.16% Zions Bancorp 176 2.81 … Fargo & Co 1,547 0.97% JP Morgan 1,184 0.55% Total 15,147 3.08% Table 4: US banks' exposure to fallen (energy) angels …

Effect of being a fallen angel on bond ratings and yieldsEffect of being a fallen angel on bond ratings and yields
jot.pm-research.com [PDF]
… Bank Exposure Fallen Angel % of Tier 1 PNC Bank 2,663 7.34% US Bancorp 2,838 6.80% Comerica Inc 288 4.16% Zions Bancorp 176 2.81 … Fargo & Co 1,547 0.97% JP Morgan 1,184 0.55% Total 15,147 3.08% Table 4: US banks' exposure to fallen (energy) angels …

High-Yield (Junk) Bonds as Investments and as Financial ToolsHigh-Yield (Junk) Bonds as Investments and as Financial Tools
heinonline.org [PDF]
… Bank Exposure Fallen Angel % of Tier 1 PNC Bank 2,663 7.34% US Bancorp 2,838 6.80% Comerica Inc 288 4.16% Zions Bancorp 176 2.81 … Fargo & Co 1,547 0.97% JP Morgan 1,184 0.55% Total 15,147 3.08% Table 4: US banks' exposure to fallen (energy) angels …

The Impact of Fallen Angels on Investment Grade Corporate Bonds Portfolios: Evidence from the European MarketThe Impact of Fallen Angels on Investment Grade Corporate Bonds Portfolios: Evidence from the European Market
onlinelibrary.wiley.com [PDF]
… Bank Exposure Fallen Angel % of Tier 1 PNC Bank 2,663 7.34% US Bancorp 2,838 6.80% Comerica Inc 288 4.16% Zions Bancorp 176 2.81 … Fargo & Co 1,547 0.97% JP Morgan 1,184 0.55% Total 15,147 3.08% Table 4: US banks' exposure to fallen (energy) angels …

How are the mighty fallen: Rejected classic articles by leading economistsHow are the mighty fallen: Rejected classic articles by leading economists
www.aeaweb.org [PDF]
… Bank Exposure Fallen Angel % of Tier 1 PNC Bank 2,663 7.34% US Bancorp 2,838 6.80% Comerica Inc 288 4.16% Zions Bancorp 176 2.81 … Fargo & Co 1,547 0.97% JP Morgan 1,184 0.55% Total 15,147 3.08% Table 4: US banks' exposure to fallen (energy) angels …



Q&A About Fallen Angel


Why do investors find fallen angels attractive?

Investors find them attractive because they are cheap and have high yields.

What are some examples of fallen angels?

Some examples include corporate bonds or stocks in oil companies.

What is a fallen angel?

A fallen angel is a bond that was given an investment-grade rating but has since been reduced to junk bond status due to the weakening financial condition of the issuer.

How does one determine if a fallen angel is headed for bankruptcy?

One must look at the company's revenues, debt levels, and cash flow.

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