Angel Bond in Share Market

An Angel bond is the opposite of a fallen angel, which is a term for a company’s bond which has faced a negative impact due to increasing debt. An angel bond means that it is a low-interest, low-risk, and investment-grade bond with a credit rating high enough for banks to be able to legally invest in them.

Angel Bond Definition

Angel bonds are company bonds with an S&P rating between ‘AAA’ and ‘BBB’ and a Moody’s Investor Service rating between ‘Aaa’ and ‘Baa’. Above this minimum rating, angel bonds become assets that banks prefer to invest in, whereas below this rating they become a fallen angel. Angel bonds serve a relatively lower interest rate since the issuing company is offering a high credit rating.

Understanding Angel Bonds

Particular bond credit ratings are given to bonds to indicate their bond credit quality. These evaluations and ratings are provided based on the issuer’s financial strength, liability, debt burden or the ability to pay the bond’s principal and interest on time. Private independent rating services, such as Moody’s Investors Services, Standard & Poor’s and Fitch Ratings Inc. provide these bond credit ratings.

Angel bonds in particular are Bonds that receive an extremely high credit rating from these various institutions. However, this immensely high credit rating refers to a very high-security investment. This does come with a certain drawback of a much lower interest rate on these bonds. The higher the security and credibility of a bond, the lower the rate of interest paid.

This also stands true for ‘junk bonds’ - these ‘junk’ rating bonds were originally high-rated angel bonds that have a low rating due to financial instability, possibly to the extent below investment grade minimums, thus becoming fallen angel bonds. Fallen Angel bonds see a much higher rate of interest as they are considered risky investments with a low credit rating. Junk rating bonds, such as fallen angels, are also referred to as high yield bonds since they provide a greater rate of return but fallen angels differ from other high yield bonds that were rated below investment grade right from the start.

Examples of Angel Bonds to Fallen Angels

Fallen angels fall under the category of High Yield Bonds, but unlike other high yield bonds, these bonds once had a high credit rating and were considered angel bonds. Hence, fallen angel companies are usually large companies that have faced financial turmoil. These angel companies could not, or, had trouble with paying back the principal amount and interest on time, which caused their bond rating to gradually dwindle.

The COVID-19 pandemic saw quite a few angel bonds become fallen angels with Moody’s giving ‘junk’ ratings to not only companies but country-based investments as well. South Africa was cut to junk and Italy, India, Colombia and a few more countries were on the brink with at least one of their fundamental and primary agencies nearing the minimum angel bond rating.

India did see ease in this pandemic effect in November of 2021 as six major companies came out of Moody’s radar as potential fallen angels. These companies were Oil India Ltd (OIL), Oil and Natural Gas Corp (ONGC), Hindustan Petroleum Corp Ltd (HPCL), Indian Oil Corp Ltd (IOCL), Petronet LNG and UltraTech Cement. Three companies on the list are government-related issuers (GRIs) namely ONGC, OIL and IOCL.