Anglo American, Casino Lead Potential Fallen Angels, BofA Saysby
Anglo American Plc and Casino Guichard-Perrachon SA notes are among 25 billion euros ($27 billion) of investment-grade debt in the single currency likely to be downgraded to junk, according to Bank of America Corp.
Repsol SA is also among companies facing a potential downgrade in the “medium term,” London-based credit strategists Souheir Asba, Barnaby Martin and Ioannis Angelakis wrote in a report. The potential so-called fallen angels were selected based on rating-company reviews and bond spreads.
The risk of fallen angels has increased due to the global commodity slump and declines in emerging-market currencies, the analysts said. Miner Anglo is at particular risk because of management comments suggesting they would accept a high-yield rating, while retailer Casino has been squeezed by the slowdown in Brazil.
The analysts said investors seeking to buy fallen angel debt should quickly buy bonds following a downgrade because spreads soon narrow versus benchmark rates. A rally usually begins about 10 days after the cut and tightening tends to continue for another two months to three months, according to the report.
“High-yield investors should be quick to buy favored fallen angels upon their downgrade,” the analysts wrote.