3 July 2023
As central banks raise interest rates to combat inflation, companies are feeling the immediate impact. They are facing higher interest payments on their floating-rate debt, and their inflation-linked obligations are growing larger. There is over $1.8 trillion of this type of debt globally, mainly comprising leveraged loans, corporate floating-rate notes, and inflation-linked securities. The outlook for this debt is worsening, with Fitch Ratings attributing the uncertainty of inflation as one of the reasons for increasing its default rate forecast for US leveraged loans. BNP Paribas analysts have advised clients to sell B-rated leveraged loans in the US due to unsustainably high interest expenses.