In the wake of the COVID-19 crisis, organizations of all types are enacting measures to preserve liquidity, reduce costs and plan for the potentially slow recovery back to pre-crisis levels or, in some industries, a return to a new normal. As a result, corporate risk profiles for the near, medium and long term are facing new scrutiny, including from their auditors when evaluating the "going concern" criteria for their audit reports, and ratings agencies (Moody's, S&P, Fitch) when stress testing worst-case scenarios for rated corporates.

One result of these evaluations is that certain corporates, particularly those in industries most affected by the COVID-19 crisis, have already or may find their ratings downgraded. As of the end of April 2020, more than 1500 issuers were negatively impacted by COVID-19 and oil prices. In the case of a corporate with Baa3 and BBB- ratings, the resulting downgrade may move them into a sub-investment category, which could have several knock-off effects. In February, the OECD estimated that approximately USD 261 billion of corporate (non-financial)bonds were at risk of losing their investment grade rating by the end of the year. When they added financial institutions to into the mix, the number grew to approximately USD 500 billion.

Corporates that move from investment grade to sub-investment grade are sometimes referred to as "Fallen Angels". This issue of "In the Know" discusses some of the implications for corporates and their treasury departments (and their advisors) who face this situation, with some considerations and recommendations.

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