Economy

US Companies Face Debt Crisis As Spreads Widen

Corporate bond sales this month will be the worst since 1999. According to Bloomberg, they will only hit $47 billion, down from $183 billion in April. The borrowing machine that has allowed US corporations to lower the cost of the…

By Douglas A. McIntyre
Published May 24, 2010, 5:16am ET · 2 min read

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Corporate bond sales this month will be the worst since 1999. According to Bloomberg, they will only hit $47 billion, down from $183 billion in April. The borrowing machine that has allowed US corporations to lower the cost of the debt on their balance sheets, raise dividends, continue share buybacks, and expand their operations has come to an end. If the trouble in Europe continues, access to capital among blue chip companies could remain difficult. The situation with junk bonds, a critical financing tool for many US companies, is even worse.The trend is caused by a “flight to safety” among fixed income investors. This means Treasuries. The trend may lower America’s ability to finance its growing deficit and may even trickle down to related interest rates like mortgages, which are running well below 5% for 30-year fixed. But the lack of capital for corporations could be a major cause of slowing of the domestic economy. And it could make equities less attractive.

American businesses have been reluctant to hire which has kept total unemployment and under-employment over 17%. That has been, and will continue to be, a drag on GDP improvement and consumer spending. Congress continues to extend unemployment benefits, at the cost of tens of billions of dollars to taxpayers.

In the meantime, there is no way to offset the higher borrowing costs for US companies. There is also no way to offset the effects of the scarcity of capital.

Geithner, Summers, and other Administration officials have argued that the crisis in Europe is not likely to damage the US economy. That is not true. The effects have begun already and could be long and profound.

Douglas A. McIntyre

Contact [email protected] for any questions or corrections.

Douglas A. McIntyre

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.

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