Fallen angel volume this year may not be as bad as 2020 when it touched $250 billion, but it could be significantly higher than $18 billion in 2022. Some 0.8% of the investment-grade bond index, or $55 billion, was seen at risk for downgrades and already trading at the BB-rating band or junk bond levels, the report said. Unlike energy in 2020, no sector is currently in distress and the Fed is expected to start cutting interest rates if the economy slows too much, said BofA Global. Junk-bond fund managers see the downgrades as an opportunity to invest in quality companies that have the potential to graduate back to investment grade. They could also buy them almost 150-200 basis points cheaper than an equivalent BB bond, as some funds may be forced to sell these bonds for failing to meet their investment-grade bond mandates, said Manuel Hayes, senior portfolio manager at asset manager Insight Investment. (Reporting by Matt Tracy, editing by Shankar Ramakrishnan and Hugh Lawson)
By Matt Tracy
WASHINGTON, March 9 (Reuters) - The downgrade of Nissan
Motor's credit rating from investment grade to junk by
S&P Global on Tuesday marks the start of a cycle that could see
as much as $55 billion of so-called "fallen angels" this year,
said fund managers.
Global supply-chain disruptions, higher labor costs and
persistently high inflation in a slowing economy is expected to
hurt companies in cyclical sectors like automotives,
homebuilding and industrials, leading to rating downgrades of
some investment-grade rated companies.
S&P cut Nissan's rating by one notch to BB+ or junk, saying
its profitability will remain weaker than global peers as
softening demand for new car sales in the U.S. and Europe would
pressure sales prices.
"We're now reaching that inflection point where you're going
to start seeing that recession squeeze on companies' earnings,"
said Jason Friedman, global head of business development at
Marathon Asset Management.
Nissan had $10 billion in outstanding U.S. dollar bonds,
making it the largest fallen angel since 2020, said BofA Global
Research in a report on Tuesday.
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