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Fallen angels: Should the market be worried about the triple-B cliff?

$4.3 trillion of loans and bonds are vulnerable to US rate rise or economic slowdown, stoking fears of a wave of fallen angels.


When S&P Global Ratings decided to slash its rating of California-based utility PG&E by five notches at the beginning of this year it provided another painful reminder of just how fast corporates can move from investment grade to fallen angel to, in this case, failing angel.

The company announced its intention to file for Chapter 11 bankruptcy protection just days later on January 14.

PG&E, which has $18 billion of bonds outstanding and has been hit by a wave of wildfire liabilities that could reach $30 billion, previously filed for Chapter 11 in 2001.

The idiosyncratic nature of the risk it represents has not so far stoked too much simmering fear in the market over the looming triple-B cliff: the huge volume of lowest-rated investment-grade debt that will likely be cut to junk when the cycle turns.

That risk, however, is very much there.

Justin Bourgette,
Eaton Vance

“There is a large triple-B overhang of around $3 trillion that has doubled in the last 10 years,” Justin Bourgette, portfolio manager of the multi-asset credit fund in Eaton Vance’s global income team based in Boston, tells Euromoney.

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