The burden of debt in corporate America
With the Fed's decision to hold the current interest rates, the interest rates are at recent all-time high levels for America.
This segment is taken from Google Gemini:
Corporate Loans:
Business Loans: Interest rates on business loans typically range from 6% to 12.36% for bank loans, with online lenders potentially offering higher rates [based on data from NerdWallet]. The specific rate you receive depends on factors like the loan type, your business's qualifications, and the collateral you offer.
Here are some extracts from a recent Yahoo Finance article dated 18Jun24:
A wave of large bankruptcies is about to hit the US economy — and that could spark job losses for a growing number of Americans, according to Wall Street forecaster Danielle DiMartino Booth.Nine companies worth $50 million or more have failed so far this year, the fastest pace of large bankruptcy filings since the pandemic. Booth predicted that the number of large bankruptcies would climb to 25 by the end of June, surpassing the peak of large corporate bankruptcy filings during the pandemic.Small businesses are also feeling the pressure of tighter financial conditions and higher wages. 10% of small business owners said labor costs were their "single most important problem," according to the latest Small Business Optimism Index.Small businesses are also feeling the pressure of tighter financial conditions and higher wages. 10% of small business owners said labor costs were their "single most important problem," according to the latest Small Business Optimism Index.
Stock screening
Due to the corporate interest rate, I have set up a screener to identify listed companies with high debt servicing. With high debts, the company would pay the range of 6 to 12%+ for corporate loans.
Here are some observations that I have made about the market in lieu of the burden of debt.
Let us watch out for companies with high debt ratios, negative sales growth in the past 5 years, and negative EPS growth in the last 5 years.
Let us watch out for these companies making a loss and with high debt ratios.
My investing Muse
In a high interest rate environment, companies with high debts would have higher risk exposure. Let us review the portfolio that we have. If businesses have high and increasing debts/liabilities, we need to evaluate if they can survive the current interest rate environment. Is this time to stop loss or to hold on to these shares?
It is not a bad time to review our portfolio.
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