Identify Downgrades to High Yield with Fallen Angel Score


The COVID-19 crisis has led to a dramatic repricing of credit markets that will take its toll on BBB issuers on both sides of the Atlantic. Even those with strong credit fundamentals are at risk, and rating agencies are reacting quickly to increasing pressure on BBB fundamentals.

To help you navigate this rapidly changing landscape, CreditSights has launched the Fallen Angel Score (FAS)––a quantitative estimate of the likelihood of US and Euro BBB corporate bond issuers moving from IG to HY.

Download the article to learn:

  • How the score can help highlight risks in a portfolio and focus attention on the credits most likely to be downgraded.
     
  • 20 BBB issuers that our FAS model has signaled as having a very high risk of a downgrade to high yield over the next 6 to 12 months.

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About Fallen Angel Score


The CreditSights Fallen Angel Score (FAS) is a quantitative estimate of the likelihood of USD and euro BBB corporate bond issuers moving from IG to high yield over a 12-month period. This signal can highlight risks in a portfolio and help focus attention on the credits most likely to be downgraded. The score is recalculated weekly.

As of March 27th, our score has identified 81 issuers at risk of downgrade into HY in the next 12 months. This is an increase of 36 names on March 4th and we do not see this trajectory slowing down in the near-term.

 


Why It Matters


The outbreak and spread of COVID-19 has created the worst-case scenario that will likely lead to significant damage to the global economy. As a result, investors are pulling assets and testing the limits of credit markets.

The corporate debt binge of the last decade is front and center to this crisis, as investors are finding liquidity gone and issuers are finding markets closed. Even those with strong credit fundamentals are at risk and the entire market continues to reprice at a once-in-a-lifetime speed and is on pace to reach discounts greater than those experienced during the financial crisis.

With so much debt at risk, investment professionals all over the world will be looked upon to identify paths of least resistance for recovering their individual remits (AUM, investment portfolios, pension funds) when liquidity returns.
 

 


Interested in adding Fallen Angel Score to your workflow? Click here to request a demo.