by 3 minutes Reuters (Reuters) – According to a research released on Wednesday by asset management Janus Henderson, global corporate net debt would rise by as much as $600 billion this year as companies begin to spend some of the cash hoarded during the pandemic. In the midst of the coronavirus illness (COVID-19) pandemic in the Manhattan borough of New York City, New York, United States, on April 16, 2021, a Wall Street sign is seen outside the New York Stock Exchange. REUTERS/File Photo/Carlo Allegri Companies borrowed a record $1.3 trillion last year but were reluctant about spending it, leaving them with $5.2 trillion in cash, according to Janus Henderson. As a result, overall debt increased by 10.2 percent to a new high of $13.5 trillion for the 2020 fiscal year, while net debt increased just modestly to $8.3 trillion. With the economy improving, the company anticipates a surge in capital spending, dividend payments, and share buybacks in the second half of this year and beyond. According to the analysis, worldwide net corporate debt will increase by $500-$600 billion by year’s end, to $8.8-$8.9 trillion. Despite the potential of greater inflation, Janus Henderson argued that the improvement in credit quality associated with economic recovery and supportive monetary policy provided investment opportunities. High yield debt, also known as trash bonds, has outperformed this year because it is less sensitive to changes in underlying rates. [xnL1N2L60EG] “The expectation of faster economic growth and rising inflation…means better credit fundamentals – better cash flow, improved leverage ratios,” said Tom Ross and Seth Meyer, fixed income portfolio managers. “Debt has risen, but cash has skyrocketed, markets are wide open, and free cash flow is accelerating, so businesses have a decent wind in their sails.” They’re relying on the reemergence of several of last year’s “fallen angels,” or companies who lost their investment-grade ratings as a result of the pandemic, particularly food and beverage companies like Kraft and auto manufacturers like Ford. They also expected that default rates would remain low, likely below 1%, and would only climb slightly in 2022, though they warned that certain industries, such as airlines and leisure, would be particularly vulnerable. Yoruk Bahceli contributed reporting, and Barbara Lewis edited the piece./n
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