Record US Corporate Debt Levels Have Analysts At Odds

A day after the Bank of England issued a warning of rising debt levels across the globe, new analysis eased some concerns over growing corporate debt in the U.S. Reports in CNBC on Thursday (June 28) said corporate debt in the U.S. hit a new high, surpassing levels seen before the 2008 financial crisis. According to S&P Global, corporate debt hit $6.3 trillion, pointing to historically low interest rates as an attractive proposition for businesses.

Some analysts aren’t worried about that debt, though.

“The red flags are not going up yet because, to a large extent, the level of interest rate is actually quite benign,” said Francesco Curto, the head of cash return on capital invested (CROCI) and co-head of research at Deutsche Bank’s asset management unit DWS. “So I wouldn’t say there are major concerns there — the ratings of these companies, to a large extent, are still positive, so everybody is in agreement that, post these hikes [from the Federal Reserve], we are not going to see significant hikes coming after this.”

CNBC said, though, that other analysts have a differing opinion on rising U.S. corporate debt levels.

“A period of high credit growth is more likely to be followed by a severe downturn, or financial sector stress over the medium term, if it is accompanied by an increase in the riskiness of credit allocation,” warned the International Monetary Fund (IMF) in an April report.

According to reports, speculative borrowers’ current cash-to-debt ratio is at a record low: For every dollar that a company has in cash, it has $8 worth of debt, the publication explained. S&P Global primary credit analyst Andrew Chang warned in the report that, as corporates increase borrowing amounts, they are not “effectively improving their liquidity profiles.” Rising interest rates, four of which are expected to come from the Fed this year, could raise trouble for borrowers.