In times of unexpectedly high inflation, raising rates is the weapon of choice for central banks. As a result heavily indebted companies face a double whammy. One from higher interest rates, and another from lower cashflows as revenue may be reduced from decreased economic activity.
The Financial Times took a look at components (paywall) of the ICE Global High Yield Index, identifying those companies with debt trading at more than 10 percentage points (1000 basis points or "bps") above government bonds.
By this metric, it identified 207 companies whose bond spreads indicate an elevated risk. Although caution must be exercised that this is not a list of doomed companies, as it noted that many of these companies have escaped death many times.
Some of the companies in the list do show eye-watering spreads over the government bonds such as US retail investors' favorites (AMC 1339 bps, Bed Bath & Beyond 5464 bps). Closer to home, LMIRT Capital appears on the list (1856 bps)
The article is behind a paywall but it is a timely reminder to review the indebtedness and survivability of your portfolio companies.
None of the above should be construed as investment advice. Do your own due diligence as I will not be responsible for any loss/risk.
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