Fallen Angels and crossover credits
Fallen Angels and crossover credits are often targeted by alternative investor groups like hedge funds and risk arbitrageurs who speculate on the mispricing between the various financing instruments of a company.
Characteristics of Fallen Angels:
- High leverage in respect to operating cash flows
- Weak industry trends lead to low and unpredictable operating cash flows
- A further deterioration of the operating performance is not sustainable with the financial profile
- Loss of market share
- Not enough liquidity to support the ongoing business
- Decreasing asset quality
- Management is unable to identify profitable business units
- Weak and complex debt structure
- Unfavorable regulatory environment and lack of support by the government (mainly for European companies)
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