Investment Banking

Ever so subtly, the high interest rates of the past year have started to separate the viable businesses from the ones sustained by cheap money. Expect 2023 to kick that process into high gear, the Washington Post reported. Interest rates started surging in late 2021 as the Federal Reserve began to acknowledge that inflation wasn’t “transitory,” but relatively few companies have had to deal with the consequences. Many of them met their near-term borrowing needs during the first two years of the COVID-19 pandemic, when rates were unusually low. Defaults and bankruptcies have begun to inch up since then, but only slowly and from extraordinarily low levels. So far, prominent blowups have been few and far between. Those episodes were idiosyncratic and, by total dollar amounts, still a far cry from the fallout of a typical recession. But corporate America’s reckoning with its addiction to cheap debt is coming — and possibly as soon as next year, according to the analysis. While high-yield bond maturities still look manageable for the next 12 months, the wall of expiring debt looks much more daunting in 2024. Companies will have to start refinancing well in advance of that, and they’re likely to find that the cost has risen too high for otherwise flimsy business models to withstand. At today’s rates, all-in yields on high-yield debt sit around 8.67% at the time of writing, far above the 2017-2021 average, according to Bloomberg data. Much will depend on what transpires in the economy next year — and when. A Dec. 12-16 Bloomberg survey of economists puts the probability of a 2023 recession at 70%, but opinions vary widely in terms of when such a downturn would begin.