Corporate net debt is set to grow by $550 billion in 2021 as companies benefit from their record holdings of $5.2 trillion in cash from the pandemic.
7 July 2021
Total corporate debt rose 10% in 2020 to a record $13.5 trillion. However, between January and June 2021, companies hardly get any more loans as industrial nations look beyond the pandemic.
Businesses have not spent any of this new borrowing as they have kept cash on hand during the pandemic. This means that net debt (total debt minus liquidity) has not increased.
– Companies begin to use all of their $5.2 trillion cash holdings – Janus Henderson expects a boom in investment, dividend payments and share repurchases in the second half of 2021 and beyond.
Spending increases net debt even if total debt does not increase. Janus Henderson expects net debt to grow by $500-600 billion to $8.8-8.9 trillion by the end of the year.
Improving fundamentals and loose monetary policy provide opportunities for bond investors, particularly those looking to reclaim “falling angels” and “rising stars” in the high-yield category.
According to the annual Janus Henderson Corporate Debt Index, companies around the world took on a record $1.3 trillion in debt in 2020, while global profits fell by a third. Total debt (excluding cash holdings) rose 10.2% to an all-time high of $13.5 trillion for fiscal year 2020.. Companies raised funds to prepare for a global recession and potential restrictions on access to financial markets.