New level achieved by corporate debt
Corporate debt is reaching such a point that it is also reaching record levels. In fact, there could be a threat to the global economy. And it is that if the rates increase or the profits fall of the highly leveraged companies, these would become a threat.
While for some individuals and families they initiate a long and painful process of deleveraging due to the financial crisis, for others it is the opposite. And it is that those companies that moved quickly go in the opposite direction. Since they are charged with cheap debts to the point where many observers now worry that highly leveraged companies pose a threat to the global economy.
The ascent of corporate debt
It should be noted that the corporate debt of the United States has amounted to approximately 46% of the gross domestic product. In fact, according to data from the Federal Reserve and the Department of Commerce, this has been established as the highest registered. Likewise, those companies in emerging markets, such as China, have been increasing even more in loans. In such a way that they are taking advantage of the ultra-low interest rates and, in some cases, the state-driven policies designed to push economies forward.
In the same way, those companies have been able to pay their debt without too much difficulty. However, there is concern that it could change if interest rates continue to rise, which makes debt more expensive or if the economy slows down, reducing profits.
On the other hand, in the United States, it has increased leverage levels, for both large and small companies. It should be noted that there is a large expansion in the number of corporate bonds rated at the lower level of the investment grade spectrum. This is a trend that some analysts worry about since it could be giving investors a false sense of security about the security of their holdings.
While for medium-sized companies, there has been an increase in so-called direct loans. Likewise, by the end of 2017, banks did not have more than half a billion dollars in loans for medium-sized companies. This compared to approximately 300 billion dollars in 2012, according to estimates by private equity firm Ares Management LP.
For those banks that have depended for a long time on commercial loans, there has been growing concern about the growing role of non-bank lenders.
Source: Sam Goldfarb and Rachel Louise Ensign | The Wall Street Journal