What Is a Fallen Angel?
A fallen angel, in the investing world, is a bond that was initially given an investment-grade rating but has since been reduced to junk bond status. The downgrade is caused by a deterioration in the financial condition of the issuer.
The term is also sometimes used to describe a stock that has fallen precipitously from its all-time highs.
Fallen Angel Explained
Fallen angel bonds have been downgraded by one of the major rating services, which include Standard & Poor’s, Fitch, and Moody’s Investors Service. They may be corporate, municipal, or sovereign debt.
Key Takeaways
- A fallen angel is a bond that has been reduced to junk status because its issuer has fallen into financial trouble.
- Its bonds pay higher returns than investment-quality bonds but are riskier.
- Some bond funds and ETFs focus on fallen angels.
The primary reason for a downgrade is a decline in revenues, which jeopardizes the ability of the issuers to pay the interest due on their bonds. If the declining revenues are combined with increasing levels of debt, the potential for a downgrade increases dramatically.
Fallen angel securities are often attractive to contrarian investors seeking to capitalize on the potential for a company to recover from a temporary setback. Under these circ*mstances, the downgrade process usually starts with the company's debt being placed on a negative credit watch. That alone forces many portfolio managers to sell their positions, as their governing rules may forbid holding them.
Junk Status Drives Selling
The actual downgrade to junk status drives more selling pressure, particularly from funds that are restricted to holding investment-grade debt exclusively. As a result, fallen angel bonds can present value within the high-yield category but only if the issuer appears to have a reasonable chance of recovering from the conditions that caused the downgrade.
Fallen Angels Funds
There are even fallen angel bond funds for investors who spot opportunity at a fire sale. The VanEck Vectors Fallen Angel High-Yield Bond ETF invests only in bonds that have been downgraded. As of September 2021, its holdings included bonds from Sprint Capital Corp., Vodafone Group PLC, and Freeport McMoran, among others. There also is the iShares Fallen Angels USD Bond ETF which, as its name suggests, invests only in dollar-denominated fallen angels.
The Risks of Investing in Fallen Angels
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 the company's increased risk of default. As a result of the downgrade, the prices of the company’s bonds will decline and its yields will increase. That makes them attractive to contrarian investors who see low oil prices as a temporary condition.
Municipal bonds from troubled cities with declining tax revenues are in danger of being downgraded.
Some fallen angels don't come back. For example, a company will experience declining revenues if a better product than theirs appears on the market. If the company fails to innovate, it won't come back. The progression from VCR tapes to DVDs to streaming video is an example.
Municipal and sovereign debt issuers may also see their investment-grade bonds downgraded to junk status due to a combination of stagnant or declining tax revenues and increasing levels of debt. These conditions can create a downward spiral toward default as debt repayments eat into declining revenues and yet more bonds are issued to cover the shortfall.
Sooner or later, that municipal or national government is going to miss a payment.
FAQs
A fallen angel is a bond that has been reduced to junk status because its issuer has fallen into financial trouble. Its bonds pay higher returns than investment-quality bonds but are riskier.
What does it mean when someone says they are a fallen angel? ›
Fallen angels are angels who were expelled from Heaven. The literal term "fallen angel" does not appear in any Abrahamic religious texts, but is used to describe angels cast out of heaven or angels who sinned. Such angels often tempt humans to sin.
Who is the fallen angel in the Bible? ›
Some Christian writers have applied the name "Lucifer" as used in the Book of Isaiah, and the motif of a heavenly being cast down to the earth, to the devil.
What is the fallen angel effect? ›
Put differently, the new EPA-mandated GHG emissions data could potentially have a disillusioning (“fallen angel”) effect, i.e., exacerbate the negative effect of GHG emissions on the value of a firm with a previous reputation for corporate social performance (as captured by the firm's CSR score).
Why was fallen angel banned? ›
Fallen Angels
Challenged on the Danbury Middle School reading list in Toledo, Ohio (2013) because of inappropriate language. The book depicts the reality of the Vietnam War, with sometimes gruesome descriptions of combat and frequent foul language from soldiers. It won the 1988 Coretta Scott King Award.
What is a good fallen angel quote? ›
Best fallen angel captions for instagram
- Embracing my fallen angel side.
- Lost in the shadows of my wings.
- A fallen angel with a heart of gold.
- Unleashing the devilish grace within.
- Beneath these broken wings, I rise.
- Captivating hearts with my fallen grace.
- Embodying the beauty of fallen dreams.
Overflowing kindness
One of the most striking signs is their boundless kindness. These individuals go out of their way to help others, even when they gain nothing in return. Their hearts are full of empathy and compassion, and they make the world a better place through their actions.
What was Satan's name when he was an angel? ›
Many Christians believe the Devil was once a beautiful angel named Lucifer who defied God and fell from grace. This assumption that he is a fallen angel is often based the book of Isaiah in the Bible, which says, “How art thou fallen from heaven, O Lucifer, son of the morning!
What is Satan's real name? ›
Satan, also known as the Devil, and sometimes also called Lucifer in Christianity, is an entity in Abrahamic religions that seduces humans into sin or falsehood.
Who is Lucifer's wife? ›
The Lilith myth is the subject of the episode "Lilith: Queen of the Night" from the third season of the Canadian documentary series The Naked Archaeologist. Lilith appears in Hazbin Hotel. She is the ex-wife (first wife) of Adam, the first human, wife of Lucifer, queen of hell, and mother of Charlie.
Joseph, The Favorite Son.
What kind of powers do fallen angels have? ›
All Fallen Angels (Wether neutral or not) have certain abilities and weaknesses, which are: Abilities: - They are Able to Create Light -or- Darkness 2/day. - Can use the ability of Lay Hands (or Harming Hands) 2/day as if a paladin (Dark Paladin) of the same level.
Are we fallen angels who didn t want to believe? ›
Are we fallen angels who didn't want to believe that nothing is nothing and so were born to lose our loved ones and dear friends one by one and finally our own life, to see it proved?
How many angels are there according to the Bible? ›
The idea of seven archangels is most explicitly stated in the deuterocanonical/apocryphal Book of Tobit when Raphael reveals himself, declaring: "I am Raphael, one of the seven angels who stand in the glorious presence of the Lord, ready to serve him." (Tobit 12,15) The other two angels mentioned by name in the Bibles ...
What does fallen angel mean in the military? ›
Fallen Angel. Military jargon for a troop killed in action. Helos always travel in tandem, so both were ordered to stand down until the metal casket could be transferred to a vehicle from the base mortuary affairs unit.
What is fallen angels color code? ›
Colors in Palette
| Hex | RGB |
|---|
| #7eaed9 | (126,174,217) |
| #c2dcf2 | (194,220,242) |
| #bf9d73 | (191,157,115) |
| #a6774e | (166,119,78) |
1 more rowIn the Book of Enoch, the watchers (Aramaic עִירִין, iyrin) are angels dispatched to Earth to watch over the humans. They soon begin to lust for human women and, at the prodding of their leader Samyaza, defect to illicitly instruct humanity and procreate among them, arriving on a mountain called Hermon.
What is the difference between fallen angels and rising stars? ›
A fallen angel is a bond that was once rated as investment grade but has fallen to junk-bond status because of the issuing company's poor credit quality. A rising star is a bond that is rated as a junk bond but could become investment grade because of improvements in the issuing company's credit quality.
