Angel Bond
What is Angel Bond?
Angel Bond, inverse of 'fallen angels', is shoptalk for a investment-grade bond with a sufficiently high credit rating that banks can legally invest in them.
Understanding Angel Bond
An angel bond pays a lower interest rate as a result of the responsible company's high credit rating which suggests a lower risk investment. Angel bonds are something contrary to fallen angels, which are bonds that were initially investment-grade yet have been downgraded to a "junk" rating, and are in this manner significantly more risky.
Angel bonds receive investment-grade credit ratings that can go from a high of 'AAA' by Standard and Poor's (S&P) and Fitch and 'Aaa' by Moody's Investors Service to the base investment-grade ratings issued by each service of 'BBB' by S&P and Fitch, and 'Baa' by Moody's. In the event that the company's ability to pay back the bond's principal is diminished, the bond rating may fall below investment-grade essentials and become a fallen angel.
Angel bonds are most usually utilized as a point of reference while depicting fallen angels. The last option have "fallen" by seeing their credit ratings slip through the different levels of investment-grade ratings into the below-investment grade area, likewise alluded to as high yield or junk ratings categories. Fallen angels contrast from other high yield bonds that were initially rated below investment grade.
A bond rating is a grade given to bonds that shows their credit quality. Private independent rating services like Standard and Poor's, Moody's Investors Service and Fitch Ratings Inc. give these assessments of a bond issuer's financial strength, or its ability to pay a bond's principal and interest in an ideal fashion.
Credit ratings generally mirror a relative positioning of credit risk. For instance, a obligor or a bond issuer for a security with a high credit rating is assessed by the credit rating agency to have a lower probability of default than an issuer for a debt security with a lower credit rating.
Instances of Angel Bonds to Fallen Angels
Fallen angel bonds will quite often be bigger and all the more deeply grounded companies that have encountered financial hardships, for example, declining sales, increased competition or rising debt that has negatively influenced their ability to repay debt obligations.
Retailer JCPenney (JCP) is an illustration of a once strong company that has turned into a fallen angel. JCPenney was falling off record holiday sales and kept an investment grade A rating from S&P in 1997 when it turned into the main retailer out of a group of angel bond issuers to sell 100-year bonds. However, plunging sales brought about by stumbles in pricing and marketing as well as failed endeavors to draw in additional prosperous customers made the company's bonds lose their investment grade rating over the course of the next decade and fall deep into junk bond an area. {Note: JCP petitioned for chapter 11 bankruptcy on May 15, 2020}.
Other angel bonds that have been downgraded to below investment grade ratings incorporate Ford (F) and Gap (GPS).
Highlights
- Angel bonds receive investment-grade credit ratings that can go from a high of 'AAA' and 'Aaa' to the base investment-grade ratings of 'BBB' and 'Baa'.
- An angel bond pays a lower interest rate due to the responsible company's high credit rating which infers a lower risk investment.
- Angel Bond, inverse of 'fallen angels', is shoptalk for an investment-grade bond with a sufficiently high credit rating that banks can legally invest in them.
