Companies have spent the years since the global financial crisis binging on debt. Now, as the coronavirus pandemic threatens to push the world into recession, the bill could come due — exacerbating damage to the economy and feeding a meltdown in financial markets.
Looking to take advantage of low interest rates, companies have rushed in recent years to issue bonds whose proceeds could be used to grow their businesses.
Corporate debt among non-banks exploded to $75 trillion at the end of 2019, up from $48 trillion at the end of 2009, according to the Institute of International Finance.
As the coronavirus spreads — touching off a plunge in oil prices and a collapse in travel, and shutting factories from Italy to China — there is increasing alarm that companies in the energy, hospitality and auto sectors won’t be able to make their bond payments.
That could trigger a spree of ratings downgrades and defaults that would further destabilize financial markets and compound the economic shock.”This certainly is another match being lit [near] the bonfire of corporate debt liabilities,” said Simon MacAdam, global economist at Capital Economics. “There’s definitely potential for systemic risk.”