Global corporate debt will decline amid higher funding costs, study finds

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NEW YORK, July 6 (Reuters) – Global corporate net debt fell 1.9% to $8.15 trillion over the past year as higher borrowing costs reduced the appetite for new financing and the strong cash flows from years of accommodative monetary conditions helping companies pay down existing debt, a survey of 900 large companies released Wednesday showed.

Debt is expected to decline by $270 billion in the coming year as companies adopt a more cautious stance amid rising interest rates and the economic slowdown, according to the Corporate Debt Index of investment company Janus Henderson. It was based on companies’ annual balance sheets as of June 1.

“Economic growth may slow or reverse, but companies are starting from a very profitable position,” said Seth Meyer, bond portfolio manager at Janus Henderson.

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While the global trend was to reduce borrowing, US corporate net debt rose 0.5% over the past year, according to the study.

“A preference for using debt as a larger part of the financial mix means that only one in six U.S. companies have net cash on their balance sheet, compared to nearly one in three elsewhere in the world,” said Janus Henderson.

Policymakers around the world have injected trillions of dollars into the global economy to stem the impact of the COVID-19 pandemic. But as national economies rebounded and inflation soared, central bankers began to roll back their stimulus, raising the risk of a sharp economic downturn.

“Companies will weather the recession and use cash flow to further reduce borrowing,” Meyer said.

Some borrowers in the corporate bond market have opted to repay debt instead of selling new paper at higher costs, driving down the face value of listed bonds by $115 billion since May 2021, Janus Henderson said. .

The decline in global corporate debt, the first since at least 2014/2015, was heavily influenced by the energy sector as high prices led oil and gas companies to cut borrowing by $155bn at constant exchange rates, according to the study.

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Reporting by Davide Barbuscia; Editing by Will Dunham

Our standards: The Thomson Reuters Trust Principles.

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