Given the tendency of high debt and low cash reserves in corporate America, the writing has long been on the wall that a deep recession would be disruptive if not disastrous, producing an uptick in the default rate and widespread unemployment. That recession has now arrived thanks to COVID-19, and at a speed, severity, and global scope that a select few had been planning for. Unsurprisingly, the ranks of ‘fallen angels’ – former blue chip companies whose debt has been downgraded to junk status – are now swelling at a historically unprecedented pace.

According to Deutsche Bank data cited by the Financial Times, some $90 billion worth of corporate debt fell to junk status in March – the highest number on record. Bank of America analysts further warn that that number could reach as high as $200 billion before the year is over.

In total, a staggering $569 billion worth of corporate debt has been downgraded since March 16.

This represents a significant problem for both the buyers and sellers of debt from these newly-minted ‘fallen angels.’ The list of them includes some of the most iconic names of corporate America: Ford, Macy’s, Kraft Heinz, and Occidental Petroleum. And more are surely to come so long as the COVID-19 lockdown continue to drag on.

Many of the largest institutional investors are under legal or self-regulatory obligation to hold only investment-grade debt, which means they must now suddenly unload their ‘fallen angel’ holdings. Of course, a glut of selling onset by downgrades depresses corporate high-yield bond prices even further, leading to yet greater losses for institutional investors.