Fallen Angel
Corporate Credit Analysis glossary · Ratings, Syndication & Market Dynamics
Definition
A bond issuer downgraded from investment grade to high yield. Triggers forced selling by IG-mandated portfolios and typically meaningful spread widening at the moment of crossing the BBB-/Baa3 line.
Fallen Angel in plain English
A 'fallen angel' is a bond from a company that USED to be rated safe ('investment grade') but got downgraded into the risky 'high yield' (junk) category. Why it's a big deal: many big investment funds are RULED to hold only safe bonds, so the instant the company crosses that line (the BBB-/Baa3 boundary), those funds are forced to dump it — a wave of selling that pushes the price down and drives up the extra interest ('spread') the company must pay. It's like a restaurant losing its official health-safety rating: the moment it drops below the cutoff, every partner who's only allowed to work with rated-safe kitchens must drop it at once, all on the same day.
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