From the mountains (of debt) to the oceans (of uncertainty)
By Lee Russ
Thursday, October 13, 2005 at 02:17 PM
What happens when all segments of a large, militarily powerful nation are running on empty? Or worse, running on minus, up to its collective national neck in debt? We're about to find out.
That the national debt is at its highest ever is now common knowledge. And pretty much everyone acknowledges that the level of consumer debt is staggering, with the country now having a zero savings rate.
Now it turns out that individual business have run up so much debt, compared to their assets and future earnings expectations, that more and more companies are finding their bonds reduced to "junk" ratings.
By CAROLINE SALAS, Bloomberg News, Oct. 9, 2005
More than $88 billion of U.S. corporate debt is teetering on the edge of investment grade and soon may join the record amount of bonds downgraded to junk this year.
Hertz Corp., the world's largest car rental firm, and radio broadcaster Clear Channel Communications are among 46 companies that probably will be categorized as noninvestment grade, according to credit-rating company Standard & Poor's.
A surge in debt-financed takeovers and concern that higher oil prices will hurt profit growth is eviscerating credit quality in the $5 trillion market for corporate bonds, according to some strategists.
Investors face greater risks, while companies once considered safe and now classified as so-called "fallen angels" may see borrowing costs rise.
Not since the Depression of 1929 has corporate America received so many black eyes. General Motors, the world's largest automaker, Sears Holdings Corp., the biggest U.S. department store chain, and Eastman Kodak Co., the largest photography company, led 27 borrowers whose $499 billion of outstanding debt obligations suffered the ignominy of being downgraded to junk.