Janus Henderson Corporate Debt Index

Company Debts Reach New Record but Appetite to Borrow Is Waning

Companies around the world took on $456bn¹ of net new debt in 2022/23 (as of March 31, 2023), pushing the outstanding total up 6.2% on a constant-currency basis to a record $7.80 trillion, according to the latest annual Janus Henderson Corporate Debt Index². This exceeded the 2020 peak, once movements in exchange rates were taken into account.

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(Graphic: Business Wire)

Nevertheless, one fifth of the net-debt increase simply reflected companies such as Alphabet and Meta spending some of their vast cash mountains. Total debt, which excludes cash balances, inched ahead globally by just 3.0% on a constant-currency basis, around half the average pace of the last decade. Higher interest rates have begun to slow appetite to borrow but have not yet made a significant impact on the interest costs faced by most large companies.

Verizon, the US telecoms company, became the most indebted non-financial company in the world in 2022/23 for the first time. Google’s owner Alphabet remained the most cash-rich company.³

Balance sheets remain strong thanks to record profits

Global pre-tax profits (excluding financials) rose 13.6%⁴ to a record $3.62 trillion in 2022/23, though the improvement was heavily concentrated. Nine tenths of the $433bn constant-currency increase in profit was delivered by the world’s oil producers. A number of sectors, including telecoms, media and mining saw lower profits year-on-year. Take all together, higher global profit boosted equity capital, and this meant the global debt/equity level, an important measure of debt sustainability, held steady at 49% year-on-year, despite increased borrowing.

Cash flow declined from record levels

Cash flow, which takes into account factors like investment and working capital, did not follow profits higher in 2022/23, however, dipping by 3%⁵ from record 2021/22 highs. Despite lower cash flow, companies distributed a record $2.1 trillion in dividends and share buybacks, up from $1.7 trillion the year before, and bridged the gap with higher borrowing or by running down cash piles.

Higher interest rates are only slowly impacting companies

Many large companies finance their debts with bonds that have fixed interest rates (known as coupons), and this is delaying the impact of higher interest rates – only about one eighth of bonds are refinanced each year. The amount spent on interest only rose 5.3% on a constant-currency basis in 2022/23 which was significantly less than the increase in global interest rates, and interest consumed a record low 9.2% of profits⁶. There is significant regional variation. US companies rely more on bond financing and saw no increase in interest costs, but those in Europe, where variable-rate loans arranged by banks are common, interest costs rose by a sixth.