Companies weighed down with too much debt may be able to avoid bankruptcy in 2024, thanks to an easing in monetary policy the Federal Reserve is expected to unroll in coming months, the Wall Street Journal reported. Companies in the U.S. borrowed some $1.7 trillion after the Fed cut interest rates to near zero in 2020. But after rates rose quickly in 2022 and continued rising in 2023, several large companies weren’t able to borrow more and ran out of cash, forcing many of them to file for bankruptcy, including home-goods retailer Bed Bath & Beyond and co-working space provider WeWork. Even though highly indebted companies have billions more in debt coming due in 2024, they may be able to avoid filing for bankruptcy. Markets now expect the Fed will cut rates in the new year, spurring companies to refinance their old debts and sidestep a long-awaited financial reckoning with the pandemic-era debt spree. Since Fed Chair Jerome Powell said in mid-December that high interest rates could cause unnecessary harm to the economy, some investors on Wall Street have priced in three rate cuts for 2024. Those expectations have already made it easier for companies to borrow. In the debt markets, the average cost for a highly indebted company to borrow has dropped, falling to the cost of a U.S. Treasury bond plus 3.4%, the lowest premium to borrow since early 2022, according to Fed data. (Subscription required.)
