These U.S. Companies Have The Highest Debt-To-Equity Ratios Right Now

U.S. companies have never had so much debt on their books as they do now. As of the fourth quarter of 2019, non-financial firms owed some $9.6 trillion in outstanding debt, a figure that’s up more than 57 percent from the financial crisis 10 years earlier, according to data provided by the Securities Industry and Financial Markets Association (SIFMA).

Thanks to a decade-long credit binge driven by rock-bottom borrowing costs, corporate debt as a percent of U.S. GDP now hovers around 47 percent, or nearly half the size of the economy. As you can see below, this level well exceeds those we saw in the last two credit cycles.

U.S. corporate debt has climbed to an all-time high in the decade since the financial crisis

Even in good times, this would be cause for concern. Indeed, I warned about ballooning corporate debt and the economic risks it poses a year ago, back when no one had yet heard of SARS-CoV-2 or COVID-19.

And it’s not just the amount of debt that matters, but the quality. In the years since the financial crisis, BBB-rated bonds––those that sit at the very bottom of investment-grade corporate debt––have exploded 200 percent, according to S&P Global. The pool of BBB-rated bonds grew to more than $3 trillion for the first time last year and now represents 53 percent of the entire investment-grade market.

U.S. non-financial corporate debt rated BBB has exploded in recent years

That percentage will only increase, though, as the two biggest ratings agencies, S&P and Moody’s Investors Service, are currently downgrading U.S. companies at the fastest pace since the financial crisis, with downgrades outpacing upgrades three to one.

The worry now is that, as more and more companies’ creditworthiness is downgraded to “junk” status, it will prompt a flood of selling, with not enough buyers to absorb it all.

Having said that, I was curious to see which S&P 500 companies had the most debt on their books relative to equity before markets began to tumble due to the spread of the coronavirus. As of December 31, the S&P as a whole had a debt-to-equity ratio of 1.58 percent, meaning that for every $1 they had in cash and other assets, they had $1.58 in liabilities.

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Disclaimer: A bond’s credit quality is determined by private independent rating agencies such as Standard & Poor’s, Moody’s and Fitch. Credit quality designations range from ...

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