Fallen Angels Are Coming and the Fed Can’t Save Them
The inevitable downgrades from triple-B to double-B will put money managers to the test.
Which brave investors will step up when the angels start to fall?
Photographer: Sean Gallup/Getty Images
Moody’s Investors Service wants to let corporate-bond investors know one thing in no uncertain terms: Ratings actions are coming. And soon.
That is, if they haven’t already. The credit-rating company has already dropped dozens of companies in the past week, ever since it became clear that the double whammy of the coronavirus outbreak and the oil-price shock could decimate the outlook for certain industries. On March 17, it cut Lufthansa to Ba1, the highest speculative-grade rating, from Baa3, citing “a severe and extensive credit shock” from those two factors. One day later, Occidental Petroleum Corp. was similarly dropped to Ba1 from Baa3, making the crude oil and natural gas company the biggest “fallen angel” yet in this downgrade cycle. In a March 19 interview, Anne Van Praagh and Christina Padgett at Moody’s told me to expect to see more action in the next couple of weeks as analysts undertake a global review of ratings and go company by company through the sectors most at risk, like oil and gas, gambling, passenger airlines, restaurants and lodging.