Weaker businesses taking advantage of red hot credit market

Mon, 10/21/2024

by Ellie LeTu

Source: WSJ

• Tons of low rated businesses refinancing older debt

  • Companies borrowed a combined $110B in junk rated bonds in September.

    • Third highest monthly total since 2005.

  • Maturity wall pushed back to 2028.

    • Just $65B in junk rated bonds is due to mature in 2025.

    • Down from $347B at the end of 2022.

• Driven by economic optimism

  • Two months of positive labor market data have quelled recession concerns.

  • Very little investor concern of an economic slowdown that would bankrupt low rated companies.

• Trend looks to continue

  • Higher rates have prevented PE firms from selling their portfolio businesses.

    • This is an alternative method for them to deliver cash back to their investors.

  • Overwhelming investor optimism and confidence looks to continue.

    • Tons of money available in the market, that needs to go somewhere!

    • Thus the higher risk tolerance for investors.