Quote:
Originally Posted by Run Silent
I think it depends - the bulk of corporate debt is usually variable and tied to some sort of base rate. The debt currently held at my company is tied to the Eurocurrency rate or LIBOR (our choice and elected monthly), plus a certain percentage. If our rate changed by 0.25% - it would cause an increase in our interest expense of about $2,000,000 annually on our current LT Debt balance of about $800,000,000.
This sounds like a lot, but our net income is typically over $150,000,000 per quarter, so this wouldn't really have a big impact.
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Your company is probably an anomaly in the grand scheme of things though. A lot of the corporate debt isn't secured by high net income producing companies, there are a lot of companies that won't be able to pay their debt with just a small dip in the economy. I can see it in the real estate world, and I am guessing the tech world isn't any better.
I am just taking educated guesses here but I think the feds already saw the disaster when they tried to raise rates quickly. I am guessing rates go down or just stay the same for the rest of the year. The issue with this though is that our corporate debt will just keep getting higher, sooner or later it will explode.
I see the charts posted earlier of corporate debt to market value and that looks good on paper, but in my opinion market value of a lot of these companies is extremely over inflated. When there is a dip and their market value gets "real", that chart will look a lot different.