KKR’s Chilling Message about the “End of the Credit Cycle”
by Wolf Richter
WolfStreet.com
April 6, 2016
“Opportunities in Distressed Assets” as current investors get crushed
After seven years of “emergency” monetary policies that allowed companies to borrow cheaply even if they didn’t have the cash flow to service their debts, other than by borrowing even more, has created the beginnings of a tsunami of defaults.
The number of corporate defaults in the fourth quarter 2015 was the fifth highest on record. Three of the other four quarters were in 2009, during the Financial Crisis.
At stake? $8.2 trillion in corporate bonds outstanding, up 77% from ten years ago! On top of nearly $2 trillion in commercial and industrial loans outstanding, up over 100% from ten years ago. Debt everywhere!
Of these bonds, about $1.8 trillion are junk-rated, according to JP Morgan data. Standard & Poor’s warned that the average credit rating of US corporate borrowers, at “BB,” and thus in junk territory, hit a record low, even “below the average we recorded in the aftermath of the 2008-2009 credit crisis.”
The risks? A company with a credit rating of B- has a 1-in-10 chance of defaulting within 12 months!
The Rest…HERE
