American companies find it easier to take on their record pandemic-era debts

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Investors, desperate for the bill left by the pandemic, may not have much to fear if this indicator is of any use. The ability of US companies to meet their interest payments rose to its highest level in two years in the fourth quarter of 2020 according to a key metric, according to a report released Monday by S&P Global Market Intelligence.

Questions about the sustainability of high debt burdens come amid concerns about how American businesses will pay the bills incurred by the COVID-19 pandemic. S & P’s analysis tracked the interest coverage ratio, a measure of how many times a company’s earnings, before interest and taxes, can cover the cost of debt. The interest coverage ratio of investment grade companies recovered to 7 times its earnings before taxes, up from a low of 5 times in the second half of last year, even when investment grade companies issued a record $ 1.687 trillion in bonds in 2020.

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And company balance sheets may continue to improve as earnings improve this year. Profits have grown about 34% in the first quarter of 2021 for the S&P 500 companies that have reported so far. Large American corporations took advantage of the Federal Reserve’s extraordinary response to support capital markets last year, leveraging lines of credit and borrowing as much as they could to see through the sudden decline in cash flows and income caused. over lockdowns across the country and security concerns surrounding the coronavirus. Investment-grade companies, in particular, benefited from favorable loan terms last year, locking in the costs of ultra-low-rate loans. Strong earnings rally has helped propel stocks to new heights this year, with the S&P 500 SPX, + 0.18% on track to end at an all-time high on Monday. The broad-based equity benchmark is up 11.5% year-to-date, according to the latest check. See: Rising US Debt Burden Limits Room for Fed Interest Rate Hikes, Says Analyst