A study finds that global corporate debt will go down even though funding costs will go up.
New York (Reuters) – In the past year, global corporate net debt fell by 1.9% to $8.15 trillion. This is because higher borrowing costs make companies less interested in getting new loans, and strong cash flows from years of easy money help companies pay off their existing debt, according to a study of 900 top companies that came out on Wednesday.
The corporate debt index from the investment firm Janus Henderson predicts that debt will go down by $270 billion over the next year as companies become more cautious because of higher interest rates and a slowing economy. It was based on the annual financial statements of the companies as of June 1.
“Economic growth could slow down or even go backwards,” said Seth Meyer, fixed income portfolio manager at Janus Henderson. “But companies are starting from a very profitable place.”
The study found that U.S. companies’ net debt went up by 0.5% in the last year, even though the trend around the world was to cut debt.
“Because companies in the U.S. prefer to use debt as a bigger part of their financing mix, only one in six of them have net cash on their balance sheets.” This is compared to almost one in three companies in the rest of the world.
To stop the effects of the COVID-19 pandemic, policymakers around the world have put trillions of dollars into the world economy. But now that national economies are getting better and inflation is going up, central bankers are starting to undo their stimulus measures, which raises the risk of a sharp slowdown in the economy.
Meyer said, “Companies will get through the downturn and use cash flow to pay off more debt.”
Janus Henderson said that since May 2021, the face value of listed bonds has dropped by $115 billion because some corporate bond market borrowers have chosen to pay off their debt instead of selling new paper at higher prices.
The study found that high oil and gas prices led oil and gas companies to cut their borrowings by $155 billion in constant currency terms. This was the first time global corporate debt has gone down since at least 2014/2015.
