Corporate debt defaults soared last year and could be a problem again in 2024 as cash-strapped companies deal with the burden of high interest rates, S&P Global Ratings reported Tuesday.<\/p>\n
The number of companies that failed to make required payments on their debt totaled 153 for 2023, up from 85 the year before, an increase of 80%. It was the highest default rate outside of the Covid-related spike in 2020 in seven years.<\/p>\n
Much of the total came from low-rated companies that had negative cash flows, high debt burdens and weak liquidity, S&P said. From a sector standpoint, consumer-facing companies \u2014 media and entertainment in particular \u2014 led the defaults.<\/p>\n
S&P said there could be hard times ahead for corporate America, which, according to the Federal Reserve, is carrying a $13.7 trillion debt load. Company debt has jumped 18.3% since 2020 as companies took advantage of the Fed slashing interest rates in the early days of the Covid-19 pandemic.<\/p>\n
\u201cIn 2024, we expect further credit deterioration globally, predominantly at the lower end of the rating scale (rated \u2018B-\u2019 or below), where close to 40% of issuers are at risk of downgrades,\u201d the firm wrote. \u201cWe expect financing costs to remain elevated despite the prospect of rate cuts. And while borrowers have reduced their 2024 maturities, a large share of speculative-grade debt is expected to mature in 2025 and 2026.\u201d<\/p>\n
Some economists worry that a \u201ccorporate debt cliff\u201d could become a more serious problem as a large share of maturing debt that initially was financed at very low rates comes due in the next few years.<\/p>\n
The burden, both in the U.S. and globally, could be exacerbated by \u201cslower economic growth and higher financing costs\u201d that could contribute to defaults, S&P said. Along with media and entertainment, the firm sees potential trouble spots in consumer products and retail because of a weaker economy \u201cand the already elevated number of weakest links in those sectors.\u201d<\/p>\n
But the damage won\u2019t be isolated in those areas, as S&P sees higher rates causing more widespread pain to sectors such as health care, which is suffering from elevated debt and staffing problems that are constraining revenue.<\/p>\n
Fed rate cuts are expected to alleviate the burden somewhat, though rates are expected to remain elevated at least through 2024. While markets think the central bank could cut short-term rates as much as 1.5 percentage points this year, Fed officials have indicated a slower course of perhaps half that much, depending on how the inflation data unfolds.<\/p>\n","protected":false},"excerpt":{"rendered":"
Corporate debt defaults soared last year and could be a problem again in 2024 as […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-970","post","type-post","status-publish","format-standard","hentry","category-news"],"yoast_head":"\n