Companies are well-insulated against any rate rise, according to a report from Fitch Ratings. That’s because “most companies have aggressively refinanced over the last several years, in effect pushing out maturities with longer-term debt.”
Loan refinancings and amendments have pushed out the need to refinance out to 2017-18, according to an earlier Fitch report. The amount of loans coming due in 2017-18 totaled $890 billion at the end of 2013, which puts the idea of refinancing “cliff” off the table for a while.
As for protection against a “moderate” rate rise, Fitch says its base case scenario assumes that the end of the Fed’s tapering program, stronger economic growth for the next two years and “a gradual tightening of monetary policy over the next 12 months” should give corporations some cushion.
For a sharper move higher in rates and weaker growth, Fitch “believes there would be more of an effect on ratings, or at least, pressure on corporate credit metrics.”
Meanwhile Fitch says US industrial corporate cash balances decreased in the first quarter of 2014 and second quarter data confirms trend. “This marks the most significant pause in corporate cash growth since the recovery began over five years ago,” Fitch says. Despite the 5 percent decrease in the first quarter, Fitch notes that US industrial corporate cash increase 130 percent in real terms since 2000.