This IsWhen the Next Recession Begins
obligations starts to shrink. If companies haven’t continued to steward their cash and don’t refinance their 2021 debt maturities before 2021, there may be issues then. Importantly, this chart is changing over time. The debt maturity stacks we’re showing here for 2019 to 2021 are what those maturities looked like as of December 31, 2018. We only get that data systematically when companies file their annual 10-K reports. Since we we’ve already seen some refinancing occur as we analyze individual bonds and corporate credit, it’s likely the actual picture looks even better now. There’s a three-year runway before we expect to see the kind of debt issues that could send the market and the economy into a real tailspin. DEBT THAT IS DUE IS LESS COSTLY While the U.S. has a big debt headwall coming in 2021, that can change when U.S. corporations refinance their debt. That wasn’t happening last year or earlier this year... but it’s exactly what we’ve been seeing recently. And it’s been speeding up in the past few weeks. There’s a simple reason we’re seeing a renewed interest in refinancing... After rising massively in 2018, the costs for corporations to borrow have fallen this year.
1000, which is the S&P 1500 minus the S&P 500. The S&P 1500 is basically the 1,500 largest U.S. companies. And we focus on the S&P 1000 because the 500 largest companies (the S&P 500) are so large and have such healthy-income statements and balance sheets that they wash out any insight around credit risk for companies that are the real potential catalyst for a credit crisis. The chart has a few important features worth highlighting... Uniform Accounting adjustments. The blue line represents the aggregation of corporate cash flows used for paying their obligations. And the blue dots are aggregate cash on hand (added to the cash flow each year). Companies begin getting in trouble when their cash and cash flows no longer exceed the stack. As you can see, U.S. corporations can nearly service all of their obligations, including share buybacks, with cash flow alone . And that cash allows a fair amount of buffer should any factors impact their cash flows until 2022. It’s not until 2023 that cash and cash flow combined fall squarely in the middle of maintenance capex and annual-debt maturities have tripled. That’s a three-year runway before we expect to see the kind of debt issues that could send the market and the economy into a real tailspin. Of course, we also see some concerns starting in 2021, because that’s when the buffer between cash flow and non-share-buyback The vertical bars represent all financial obligations U.S. companies have after
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December 2019
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