Wednesday, September 28, 2022

How will the rise in interest rates affect Corporate Borrowers?


From the Economist: aggregate the West’s corporate debt load looks manageable ... American public companies’ earnings before interest and tax are a healthy 6.7 times the interest due on their debts, up from 3.6 times in 2000. 

But 3 types of loans may be in for a "reckoning:"
  • The first comprises businesses that have come to rely on less orthodox sources of credit, which are often those with the diciest prospects.
  • The second area of vulnerability involves so-called zombie firms: uncompetitive enterprises, kept alive by cheap debt and, during the pandemic, government bail-outs.
  • The third and biggest area of concern involves firms that are merely unfit rather than undead.

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