Thursday , April 15 2021

Who are fallen angels on Wall Street?

According to the risk rating agency Standard & Poor's (S & P), in 2018 there were 22 global companies that fell into the category of "fallen angels". The last to join this group was the American Xerox

"Companies with a reduction in their rating do not have access to the credit market, but find it more expensive to get financing", commented Luciano Gremone, senior director and analyst at the Latin American Corporate Assessment Division at S & P, according to a BBC Mundo article.

There are concerns in the market about the possibility that other big companies, especially Wall Street, may become "fallen angels". In fact, JP Morgan analysts believe that their number could increase this year, as the conditions of the US economy get worse.

It is noteworthy that credit rating agencies qualify the credit status of companies using an alphabetical system, where AAA is the best rating, and D is the worst. This note guides investors when deciding whether or not to buy bonds from these companies.

The risk for companies to have a negative rating is to trigger a wave of sales on the markets. In fact, there are investors who have to give up a bond as soon as their rating is due to regulatory issues.

By sectors, the most affected were financial institutions, telecommunications, retail and restaurants. Among the "fallen angels" are companies from the USA, Turkey, Spain, Indonesia, Israel, Denmark and also from Latin America. For S & P there are 35 companies that risk entering this category.

The concern is that it all indicates that the market is heading for an increase in global credit cost after a decade of low interest rates. In addition, the forecasts indicate a slowdown in US economic growth, which is why the focus is on corporate debt and the possibility of reaching dangerous levels.

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