US Corporations Owe Creditors Record $10.5T In Debt

Corporate Bond Market Concerns Economists

The pandemic has fueled a record $10.5 trillion debt owed to creditors by U.S. corporations, 30 times the debt of 50 years ago, MarketWatch reported, citing a report from BofA Global Research.

The largest piece of debt, $7.2 trillion, is owed by companies with investment-grade credit ratings of AAA to BBB, MarketWatch reported.

AAA ratings are a good sign to creditors, as they expect corporations will start paying down their debts after the coronavirus is under control. But half of the corporate debt, or $3.6 trillion, sits among the BBB credit ratings category, not far from the junk designation, MarketWatch reported.

Investors had been reportedly concerned that if an economic downturn struck, BBB downgrades from credit rating firms could flood the junk bond market, according to MarketWatch.

But there were bright spots in the spring when the Federal Reserve unveiled a series of emergency funding programs designed to keep companies afloat and keep credit flowing during the pandemic. One of the Fed’s initiatives included the purchase of corporate debt for the first time.

While U.S. banks entered the pandemic with sufficient reserves to weather the downturn, the Fed warned four months ago that the nation’s banks could be at risk for massive losses as the pandemic strains their resources. At the time, the Fed said some of the biggest problems could come by way of high corporate debt and mass concentration of hedge funds.

The Fed said the economic and financial shocks of the pandemic on households and businesses would likely create "fragilities" that last for some time and that could cause trouble for banks, too. For instance, U.S. household debt hit a record high of $14.3 trillion during the pandemic, and the decrease in consumer spending strained businesses.

In June, the Fed reported firms tapped loans and issued corporate bonds in the first quarter at an annualized 18.8 percent rate. That pace is well above the 2 percent annualized pace that had been seen in the previous quarter and the sharpest surge since record-keeping began in 1946.

The total outstanding debt of these companies stood at $16.8 trillion at the end of the quarter, and that tally was greater than the total household debt outstanding, which in turn was up 3.9 percent in the quarter.



Banks, corporates and even regulators now recognize the imperative to modernize — not just digitize —the infrastructures and workflows that move money and data between businesses domestically and cross-border. Together with Visa, PYMNTS invites you to a month-long series of livestreamed programs on these issues as they reshape B2B payments. Masters of modernization share insights and answer questions during a mix of intimate fireside chats and vibrant virtual roundtables.