Corporate Debt Defaults Soared 80% In 2023 And Could Be High Again This Year, S&P Says

• Corporate debt defaults increased significantly in 2023, reaching 153 compared to 85 the previous year, marking an 80% rise. This trend poses a potential concern for 2024, as financially strained companies grapple with the challenges of high-interest rates, according to a report by S&P Global Ratings.
• A substantial portion of the defaults originated from low-rated companies facing negative cash flows, high debt levels, and weak liquidity. Consumer-facing industries, notably media and entertainment, played a prominent role in the increased default rate.
• Corporate debt in the United States has surged to USD 13.7 trillion, rising by 18.3% since 2020. This escalation occurred as companies took advantage of the Federal Reserve's interest rate cuts during the early stages of the Covid-19 pandemic.
• S&P Global Ratings anticipates further global credit deterioration in 2024, particularly for lower-rated entities ('B-' or below). The firm expects financing costs to remain high despite potential rate cuts. A significant portion of speculative-grade debt is projected to mature in 2025 and 2026, potentially contributing to a "corporate debt cliff."
• The economic slowdown and increased financing costs could lead to more widespread defaults, affecting sectors beyond media and entertainment, including consumer products, retail, and health care. Further, while Fed rate cuts are expected to provide some relief, elevated rates are likely to persist through 2024. Market expectations suggest a substantial cut in short-term rates, but Fed officials have hinted at a more gradual approach depending on inflation data.

(Source: CNBC)