Corporate Debt Defaults Jumped 80% in 2023, and May Remain High

January 16, 2024

Defaults on corporate debt soared last year and may be elevated again in 2024 as cash-strapped companies deal with higher interest rates, according to a new report from S&P Global.

The number of companies that defaulted, meaning they were unable to make required payments, on their debts climbed to 153 last year. That is an increase of 80% from the 85 companies who defaulted in 2022. Aside from the Covid-related spike in 2020, that is the highest level of defaults in seven years.

The majority of those defaults were from companies with low credit ratings, negative cash flows, high debt burdens, and low liquidity, according to the S&P report. From an industry standpoint, consumer-facing companies, particularly media and entertainment, led the way in defaults.

The report warns that there may be further hard times ahead for corporate America. Total corporate debt now totals $13.7 trillion, according to the Federal Reserve, and has jumped 18.3% since 2020, when companies took advantage of the Fed slashing interest rates when the pandemic began.

S&P expects “further credit deterioration globally” in 2024, particularly for companies with credit ratings of “B-” or below. At the lower end of the credit rating scale, S&P estimates that nearly 40% of debt issuers are at risk.

Some economists warn that we may be heading toward a “corporate debt cliff” as debt that was initially financed at lower interest rates matures in coming years. The S&P report notes that “borrowers have reduced their 2024 maturities, [but] a large share of speculative-grade debt is expected to mature in 2025 and 2026.”

Rate cuts from the Fed may alleviate some of the burden, but rates are expected to remain elevated throughout 2024.

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