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In the years of ultra-cheap money, companies have become indebted, but we must now question their ability to manage the mountain of debt as interest rates rise.
Until last year, companies took advantage of low interest rates as economies grew at a steady pace. They had no reason not to borrow.
But in 2018, clouds settled: political uncertainty, market volatility, deterioration of growth prospects, especially in China, and, most importantly, tightening of monetary policy, with central banks putting an end to stimulus taken to mitigate the 2007-08 financial crisis.
At the end of last year, the US Federal Reserve estimated that US private companies had a debt of nearly $ 15 trillion (€ 13 trillion). In Europe, non-financial corporations hold some 12 trillion euros (13.8 trillion euros), according to Pierre Verle, head of credit at Carmignac Asset Manager.
"In absolute terms, non-financial corporate debt accounts for about 70% of gross domestic product in the United States and exceeds 100% in the euro area: it is high, but not explosive," he said. Isabelle Mateos y Lago. , chief executive and chief multi-badet strategist at BlackRock Investment Institute.
She said such levels "do not say much about the ability of companies to repay their debts." Instead, Mateos y Lago pointed to another indicator: the ratio of net income to debt repayment. In the United States, net income is nine times higher than debt payments, while in Europe, the ratio is 12, she said.
& # 39; Fallen Angels & # 39;
In the United States, in recent months, concern over leveraged loans, that the former director of the US Federal Reserve, Janet Yellen, recently described as systemic risk.
These loans, estimated by experts at about $ 1.3 trillion, are made to highly indebted companies or poor credit histories, or both.
These loans are riskier because the borrower is exposed to a higher risk, but as they carry higher interest rates, they may interest investors looking for returns.
Some of these loans have been resold to investors, like high risk subprime mortgages that led to the 2008 financial crisis.
"In Europe, the problem is less serious, because investors are less willing to accept too high debt levels and the trauma of the 2008 crisis is more present," said Vincent Marioni, head of credit investment in Europe for Allianz Global Investors.
There are less than 300 billion euros of leveraged loans reconditioned, according to Verle.
Another subject of attention has been the increase in the number of companies that maintain their investment grade credit rating.
A downgrade of what rating agencies call a speculative debt rating – and investors call speculative bonds – means that companies will have to pay more interest to borrow.
These companies that fall into junk areas call "fallen angels". If they are too numerous, it could frighten investors and get them to get rid of their obligations.
Dark cloud & # 39;
This risk "hangs like a black cloud on investors," said Claudio Borio, head of the monetary and economic department at the Bank for International Settlements, when presenting his latest quarterly report in December.
Others are less concerned.
"It's in the top rated slices that excesses have been the largest in recent years," said Verle, but if "there are excesses in every credit cycle, it does not mean that the system will go down. "
At the same time, Felix Orsini, global co-director of corporate debt markets at French bank Societe Generale, said he was confident that the number of deceased angels would be limited.
"By gaining a bit of perspective, the return of volatility in 2018 was a return to normal after years in which the markets were in the bank resuscitation phase," he said.
Frédéric Gabizon, head of capital markets borrowed from HSBC France, said that "the crisis has pushed borrowers to clean up their finances," which leaves them room for maneuver.
A counterbalance is that investors still have funds to invest.
Investors "still have significant liquidity, especially insurers," said Orsini.
"The economic environment remains healthy, there is no reason to worry," said Mateos y Lago.
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