Corporations Are More Overleveraged Than in 2008 Before Crash;
One of Top Global Commodities Companies in Serious Trouble
January 28, 2016 (EIRNS)—Overleveraged companies in the United States and Europe, and the mountain of debt which is consuming their earnings, are examined in a Bloomberg News article Jan. 28 on "The $29 Trillion Corporate Debt Hangover."
The report appears just as one of the world’s largest commodity and mining companies, Freeport-McMoRan, had its debt downgraded by four levels, well into the junk range, by Moody’s Investors Service. The company’s stock has dropped 80% in the past year. It will be difficult for Freeport to remain solvent without an investment-grade rating; it, Glencore, Trafigura, and the other commodity giants require a great deal of borrowing and also have to guarantee borrowing by companies which are their customers. As for Freeport, it is also involved in increasingly difficult negotiations with Indonesia—from whose mines 15% of its global revenue derives—which now include Freeport trying to sell part of its operations to Indonesia at an inflated price.
Debt of "global companies rated by Standard & Poors reached three times earnings before interest, tax, depreciation and amortization in 2015, the highest in data going back to 2003 and up from 2.8 times last year, according to" S&P. Total debt at listed Chinese companies also reached a recent peak, but it was only a three-year high, not one exceeding the levels of the 2008 bank crash.
The bottom line: one-third of all companies listed by S&P internationally are failing to earn enough to cover their debt service.
This debt situation is linked to the relentless decline in parameters of the physical economies in the trans-Atlantic since 2011: manufacturing, goods-producing employment, exports, truck orders, ocean shipping, air freight, agricultural and other machinery (the Caterpillar tragedy), total freight shipments, etc.
The latest sign of physical contraction was the December durable goods orders report from the U.S. Commerce Department, which showed a large 5.1% drop in orders which fell for most of 2015. The sub-report considered to represent business capital investment—namely, non-military, non-aircraft durable goods— dropped 4.3%, and its November decline was increased to -1.1%.
Bloomberg quoted a Societe Generale economist in New York on the durable goods,
"Its a miserable report across the board. It’s a reflection of what’s going on in industries attached to petroleum and any that are attached to overseas activity—their activity is coming down."