Debt monsters in the downturn

Rock-bottom interest rates have long allowed companies to paper over cracks in their business models.

As central banks raise rates to tame surging inflation, scores of debt-laden companies suddenly face the uncomfortable prospect of trying to service higher interest bills with crimped cashflows.

To assemble our list of debt monsters, we chose a market metric: companies with debt trading more than 10 percentage points (1,000 basis points) above government bonds, drawn from Ice’s Global High Yield index.

Although this does not capture companies turning to private debt markets or bank loans, it produces a diverse range of 207 companies whose bond spreads are flashing a red warning signal.

The top is dominated by Chinese property companies, which until recently seemed to defy the laws of financial gravity. But the disparate group shows just how widespread corporate distress has become in 2022, taking in a French supermarket chain, an Irish aircraft lessor, an Indian miner, a Belgian toilet maker and Britain’s largest chicken producer. We have chosen to examine in more detail a sample of 35 companies from the list.

Bond investors are professional worriers and in uncertain times the market can reflect their darkest thoughts. Plenty of companies on the list have defied previous prophecies of doom, while many have already pushed out the day their debt comes due far into the future. Consider this as a tour of businesses that debt markets are fretting over, rather than a collection of condemned companies.

Robert Smith and Tom Braithwaite

Data, design and visualization by Carolina Vargas and Patrick Mathurin