Fallen Angel Definition and Example
Fallen Angel Definition – “A bond that is given higher rating once by rating agencies, but due to financial trouble becomes a junk bond”
Traditionally speaking, a fallen angel is one which that is banished from the heaven. Well, fallen angel bonds are also similar like this angel only. They are refer to angel because initially they are provided with investment grade ratings by the credit rating agencies. However, with the passage of time, their performance declines and hence become converted into junk bonds. That’s why these bonds are termed as fallen angel.
There could be many reasons behind poor performance. It could be financial scandal, decline in earnings, losses for consecutive years, etc.
Fallen Angel Example
In order to understand Fallen Angel Definition, let’s discuss and example
Suzlon Energy Ltd. is a wind turbine supplier which based in Pune in India. When started in year 1995 it is one of the best company in Asian CleanTech with 10 % global market share and ranking among the top 5 Wind Turbine Makers. At that time, the stock price of Suzlon was trading at Rs 335. But when 2008 crisis hit India, this company fails to survive. The debt of the company rises manifold. The irony is that the company whose share was trading above 300 now trading at Rs 20 in the stock market. This is the perfect example of an fallen angel company.