Fears of corporate debt bomb grow as coronavirus outbreak worsens

Financial markets already are showing major signs of stress. Investors are demanding higher interest payments in return for lending to less creditworthy companies; some businesses are delaying their planned bond sales while they wait for Wall Street to settle down; and ratings agencies are moving toward downgrading some corporate borrowers.

The mammoth debt bulge includes a dramatic increase in borrowing by the lowest quality investment grade firms — those rated just one level above “junk.” More than $1 trillion in “leveraged loans,” a type of risky bank lending to debt-laden companies, is a second potential flash point.

Watchdogs including the Federal Reserve have warned for years that excessive borrowing by corporations, including some with subpar credit ratings, might eventually blow a hole in the U.S. economy. Now, as Wall Street wrestles with a global epidemic, the debt alarms show how investors are reassessing risks they overlooked during the long economic expansion.