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Corporate Debt Binge Shatters Record, As Blue-Chip Borrowers Gorge On Cheap Money
There's been no let up in demand for corporate debt. And where there's demand, there's supply, especially at a time when borrowing costs are near record lows despite a challenging economic environment.
Last week, I spent quite a bit of time documenting the supply bonanza, both for blue-chip and junk borrowers, who have taken advantage of a market kept wide-open by the Fed's backstop for corporate America.
While the Fed's words and deeds (and don't let it be lost on you that until May, when the
If the Fed holds the paper of a corporate entity that files for bankruptcy (or insolvency), would taxpayers shoulder the write-down of losses? I’m wondering if the definition of “too big to fail” might be changing to accommodate this new exposure to risk.
A lot of companies are currently issuing debt to replace near term liabilities with longer maturities.
yeah i thought the same thing. i assume H’s numbers take that into account.
“A lot of companies are currently issuing debt to replace near term liabilities with longer maturities.”
They’ve been doing this for centuries. That’s how it works and why the debt never really has to be paid back. Short-term debt is defined as debt due in a year or less. However, when a firm refunds that debt replaces it with fresher debt, the short-term debt effectively changes into permanent capital. That’s why it is an error to exclude short-term debt from a firm’s capital base. It never goes away in a going concern. BTW, the same treatment is given to long-term debt. Firms really only pay back debt when their flexibility is impaired. Then, like it or not, it usually takes some new equity to create cash without obligation to restore the balance of capital sources in the balance sheet.
Actually i was thinking more about interest rates. With rates at really low levels companies are calling their higher interest bonds and reissuing new ones at lower interest rates. This is not quite the same as zombie companies issuing new bonds just because they can. So if you are counting the size of the debt being issued you would need to adjust for the equally large amount of debt being called; which i expect H has.