Pandemic Hangover – $11 Trillion in Corporate Debt: WSJ

Before the pandemic, U.S. companies were borrowing heavily at low interest rates. When Covid-19 lockdowns triggered a recession, they didn’t pull back. They borrowed even more and soon paid even less.

After a brief spike, interest rates on corporate debt plummeted to their lowest level on record, bringing a surge in new bonds. Nonfinancial companies issued $1.7 trillion of bonds in the U.S. last year, nearly $600 billion more than the previous high, according to Dealogic. By the end of March, their total debt stood at $11.2 trillion, according to the Federal Reserve, about half the size of the U.S. economy.

That torrent of inexpensive money has benefited all types of businesses. It helped cruise operators, airlines and movie theaters weather the pandemic by replacing some lost revenue with cash raised from bond sales. It allowed thriving businesses to stock up on cash and to save money by refinancing older debt. And it permitted companies that were struggling before the pandemic to ease the threat of bankruptcy by issuing new long-term debt.

“It’s been surprising that the cost of debt has come down as much as it has,” said Dan Schlanger, chief financial officer of Crown Castle International Corp. , a cell tower owner that has been issuing bonds with progressively lower interest rates to fund capital projects and pay off debt. “We’ve enjoyed the period of time we’re in.”

The question now is whether companies have merely delayed a reckoning. Debt-laden companies withstood last year’s recession far better than many had feared. But it was in many ways a unique shock to the economy, more akin to a natural disaster than a typical recession. For all their current enthusiasm, many CFOs and investors acknowledge that businesses could still be punished in a normal downturn that raises borrowing costs for a longer period and does more serious damage to household finances.

Source: https://www.wsj.com/articles/pandemic-supercharged-corporate-debt-boom-record-11623681511