Corporate leverage returns to pre-pandemic levels

Texas News Today

FILE PHOTO: Wall Street road signs can be seen outside the New York Stock Exchange (NYSE) in New York City, NY, USA, July 19, 2021. Reuters / Andrew Kelly / FILE PHOTO

September 20, 2021

by yoruk bahselik

(Reuters) – US and European companies set new milestones on the road to recovery from COVID-19 as debt-to-profit levels fall to their lowest levels since the 2020 pandemic. I marked it.

Net leverage, an important indicator of a company’s financial position, refers to net liabilities as a percentage of EBITDA. This is your income before considering interest, taxes, depreciation and depreciation.

According to BNP Paribas, investment grades by US companies fell to their lowest level in the second quarter since 2018, while their European leverage was the lowest since 2019.

This trend augurs well for the corporate bond markets, with the lowest-rated segment outperforming this year, indicating normalizing credit quality.

Viktor Hjord, Global Head of Credit Strategy at BNP Paribas, said:

Graphics: Corporate leverage at pre-pandemic levels

According to Refinitiv, the S&P500 and STOXX600 companies’ revenues are already about 40% above pre-pandemic levels, well above expectations for most companies.

According to BNP data, leverage is declining most rapidly among US companies with “junk” credit ratings or below the BBB threshold, which is close to pre-pandemic levels.

Christjan May, an analyst at asset management firm Schroeder, said US investment-grade companies were primarily driven by strong earnings growth, with junk and high-yield bonds “shown in negative debt growth.” For this we have taken positive steps. “

As of August, US high yield bonds were down 1.3% year-on-year, according to data from BofA.

“This is perhaps not surprising, as some low-rated companies are under pressure to reduce leverage,” May wrote in a memo.

Graphic: Total US junk debt decreases https://fingfx.thomsonreuters.com/gfx/mkt/gkplgwlmavb/quz7m-total-us-junk-debt-has-fallen-from-pandemic-peak%20(1).png

BNP Paribas data also shows that the quick ratio, which effectively shows how quickly borrowers can repay short-term loans with available liquidity, are well above pre-pandemic levels. Growth.

The quick ratio in the United States fell slightly from its 10-year high to 95%, but in Europe it was 84%, the highest since 2005, perhaps due to concerns about a slow economic recovery for local businesses. reason.

“It talks about companies that have not fully regained their confidence in the future, are still operating as if a pandemic is happening, or are not sure they can use that much money. as much as they used to. COVID,” Hjort said.

According to a report by Janus Henderson discovered in July, companies around the world have about $5.2 trillion in cash. This is a result of increased attention to the duration of the pandemic and a large amount of preventive borrowing.

However, expenses on dividends and fixed investments are increasing and the cash balance should decrease from here. According to S&P Global, global capital investment is set to be the highest year since 2007 and is projected to grow 13%.

However, the process is expected to be slower in Europe, and Hjort said corporate bonds in the region could help it outperform in the coming months.

Graphic: Growing Corporate Liquidity Ratio

(Reporting by York Bahcelli, Additional reporting by Danielo Masoni, Edited by Sujatha Rao and Nick McPhee)

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