Lower-rated US companies cut debt as bond issuance collapses to 11-year low

U.S. nonfinancial companies rated non-investment-grade cut debt in the third quarter to the lowest level in 10 quarters.

Total debt for companies rated below BBB- by S&P Global Ratings fell to $2.087 trillion from $2.208 trillion, according to S&P Global Market Intelligence data. The reduction was led by a $118.35 billion decline in the communication services sector, but debt levels fell in six of the 10 nonfinancial sectors tracked by Ratings.

An increase in debt among investment-grade-rated companies to $6.018 trillion from $5.859 trillion meant the overall debt level of public companies rose to $8.105 trillion, reversing the decline in the second quarter.

But debt continued to fall as a ratio of EBITDA for higher-rated companies, from 2.60 times in the second quarter to 2.55 times. The level has ground continuously lower since spiking to 3.76 in the second quarter of 2020 from a pre-pandemic level of 3.54.

For noninvestment grade companies, the ratio rose slightly to 3.75 in the third quarter from 3.65 despite the decline in debt. It remains far lower than the pandemic peak of 5.01.

Companies issue fewer bonds

The volume of bond issuance collapsed in 2022 as cash buffers built up in 2020 and 2021 meant many companies were able to avoid debt markets where borrowing costs have risen as a result of the Federal Reserve raising interest rates.

Just $532.48 billion of bonds have been issued this year as of Dec. 15, the lowest annual volume since 2011.

Issuance climbed to a record level of $1.203 trillion in 2020 as companies rushed to raise cash in the face of an economic collapse due to the COVID-19 pandemic and pushed governments to lock down. Extensive support from central banks and governments facilitated a sharp economic recovery leaving companies with strong balance sheets.

Total debt rises

Growth in loans means that total nonfinancial corporate debt had increased overall in the third quarter even as the value of debt securities stalled, according to data from the Federal Reserve.

Total debt rose to $12.761 trillion in the third quarter, up from $12.594 trillion in the second quarter and $11.827 trillion a year earlier.