An interesting article in the LA Times today about the increasing amount of corporate debt taken on by well known US companies. This is not new - Bloomberg reported the same thing in October 2018 as well.

Some key points, with quotes from the LA Times article:

• The amount of corporate debt has significantly increased in the last few years. Low interests rates are making it very easy for companies to take on large amounts of corporate debt to finance their growth.

  “Because the loan market got so attractive, we ended up seeing a lot more companies going to the loan market,” said Christina Padgett, head of leveraged finance research at ratings firm Moody’s Investors Service. “Companies can borrow a bunch of money relatively affordably, do what they want to do with relatively little constraints and still service their debt.”

  Further fueling the growth in leveraged loans were the near-zero interest rates put in place by Federal Reserve officials during and after the Great Recession to try to spur economic growth.

  The effect of those low rates rippled through the financial system. They lowered the cost of borrowing to make it more attractive to companies seeking to make acquisitions or refinance their debt — even if they had to take out a leveraged loan.

• At the same time, the standards for those loans are getting lower.

  Former Federal Reserve Chairwoman Janet L. Yellen went public this fall with her worries about what she called a “huge deterioration” in the standards for those loans, which make it easier for indebted companies to take on more debt. […] And in its financial stability report in November, the Fed said that although default rates for leveraged loans remained low, “credit standards for new leveraged loans appear to have deteriorated over the past six months.”

• This means many companies are getting loans that they won’t be able to repay.

  Because those companies with non-investment-grade ratings are highly leveraged, the chances are greater that they won’t pay back a loan. For that reason, the interest rate needs to be higher to offset that risk. The higher interest rate makes the loans desirable to investors seeking a greater return on their money.

• This is very similar to the housing crisis in 2008, but maybe not as risky.

  The risks aren’t nearly as widespread as they were during the housing bubble, when the percentage of all mortgages that were subprime jumped to about 20%. Leveraged loans, while growing rapidly, account for less than 5% of the more than $42-trillion U.S. fixed income debt market, which also includes corporate and municipal bonds.