Why US corporates can stand the heat from rising rates
Increased borrowing costs are raising corporate default fears in the US, but we believe higher interest rates alone won’t be sufficient to spur a significant jump in defaults. We think businesses are well-positioned to stand the heat due to a high degree of liquid assets and long debt maturity profiles, plus healthier interest coverage and lower leverage ratios than pre-pandemic.
What you will learn:
- We think a greater risk is that if rates stay high as the economic expansion slows, weaker revenue growth could leave companies with less cash to meet their debt obligations.
- Lower-quality borrowers face the greatest risks.
- The median interest coverage ratio across US industries rose to 8.7 in Q1 2022 from 4.8 in Q4 2019, evidencing the bigger cushion businesses have to cover interest expenses.
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