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- End of Easy Money: Financial Conditions Loosen Again for Junk-Rated Companies, but Some That Long Teetered Finally Go Over the Bankruptcy Cliff
End of Easy Money: Financial Conditions Loosen Again for Junk-Rated Companies, but Some That Long Teetered Finally Go Over the Bankruptcy Cliff
by Wolf Richter Wolf Street
Tightening is a slow process, and there is still a flood of excess liquidity chasing after yield.
Financial conditions for junk-rated companies have tightened only a little since the Fed started tightening in early 2022, from the loosey-goosey levels in 2021, and they remain loose by historical standards, though the Fed has jacked up interest rates by five percentage points in order to tighten financial conditions, including for junk rated companies. These junk-rated companies generally don’t have enough cash flow left over, after paying their operating expenses, to cover all their interest payments; in other words, they have to borrow new money to pay interest on existing debts, which puts them into a precarious spot when financial conditions tighten.