Fallen angel
A fallen angel is a that was originally issued as investment grade but has since been downgraded to high-yield, or junk, status by credit rating agencies. The downgrade typically follows a meaningful deterioration in the issuer's financial condition, such as rising debt levels, falling profitability, or a weakening competitive position.
The reclassification has consequences beyond the label. Many , such as and certain funds, are restricted by their own mandates to holding only , and a downgrade to high-yield status forces them to sell regardless of their view on the 's underlying value. That forced selling can push the 's price down and its wider by more than the change in the issuer's fundamentals alone would justify, sometimes creating an opportunity for high-yield investors willing to step in once the mechanical selling pressure fades.
Fallen angels are sometimes viewed differently from that were high-yield from the start, since a company large enough to have once qualified as investment grade often has more resources, better market access, and a stronger operating history than a typical high-yield issuer. Some funds and indexes track fallen angels specifically, on the view that this subset of the high-yield universe has historically shown somewhat better credit quality on average than newly issued junk debt.