Ever since the global financial crisis had taken place, the companies have been spending many years as they binge on debts. Now as the pandemic has threatened to push this world into recession, this bill might be about to become due as it exacerbates the damage done to economy and is going to feed the meltdown in a lot of financial markets. As they look to take advantage of the lower rates of interest, the companies have been rushing in lately for the issuance of the bonds whose proceeds might be used for growing of the businesses. The corporate debt in the non-banks might be exploding to the $75 trillion level by the time 2019 ends and is up from the level of $48 trillion at the time 2009 ends as per the experts.
As there is a spread of the coronavirus, touching off the plunge in the oil prices and the collapse in travel along with the shutting of factories everywhere in the world with Italy and China being the worst hit and there is an increase in the alarm which the companies in hospitality, energy and the auto sectors are not going to be able to make the bond payments. This might trigger the spree of downgrades in ratings and defaults which might further lead to the destabilization in the financial markets and the compounding of economic shock.
Another issues which is coming to the fore is the liabilities in the form of corporate debt liabilities are a major potential risk for the system.
The investors have been becoming a lot more anxious about the corporate debt in the week as the stocks sold off and the prices of crude nosedived.