Companies are repaying debts on a global scale

The Janus Henderson Corporate Debt Index – a long-term study into trends in company indebtedness around the world – shows that companies around the world are repaying debts for the first time since 2014/2015, with one-quarter of the companies in the index having no debts at all.

Key Takeaways

• Global corporate net debt fell by 0.2% on a constant-currency basis in 2021/22 to $8.15 trillion.
• Surging cash flow funded record dividends, share buybacks and debt repayment.
• We expect indebtedness to fall further in the year ahead as higher funding costs and an economic slowdown push companies to be more conservative.

View Transcript Expand

Tom Ross: For the first time in seven years, companies are repaying their debts on a global scale. In fact, global corporate net debt fell by 0.2% on a constant currency basis from 2021 to 2022 to $8.15 trillion, with 51% of companies worldwide reducing debts.

The energy sector led the way, with oil and gas producers cutting debt by $155 billion as skyrocketing energy costs spurred a revival in the industry’s fortunes.

In bond markets, corporate bond yields have risen sharply, especially in the high yield segment, which has led to widespread redemptions.

The face value of listed bonds has reduced by $115 billion since the end of May 2021 and there is now greater differentiation between high and low risk issuers, sectors and maturities of debt.

Looking ahead, we expect global net debt to fall by a further $270 billion this year as higher funding costs and an economic slowdown forces companies to be more conservative.

 

High yield corporate bond: A bond which has a credit rating below an investment grade bond. It is sometimes known as a sub-investment grade bond. These bonds usually carry a higher risk of the issuer defaulting on their payments, so they are typically issued with a higher yield to reflect the additional risk.

Net debt: All borrowings minus cash or cash equivalents.

Yield: The income on a security typically expressed as a percentage rate. At its most simple, for a bond this is calculated as the annual coupon payment divided by the current bond price.