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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.)

The rapid rise of private credit may pose unforeseen threats to the U.S. banking system, according to two senior Democratic senators, Bloomberg News reported. Sherrod Brown, who chairs the Banking Committee, and Jack Reed, who also sits on the panel, yesterday asked U.S. regulators to do more to assess the potential dangers. The lawmakers also requested details on what the Federal Reserve, Federal Deposit Insurance Corp. and the Office of Comptroller of the Currency were doing to address the issue. “Unlike the traditional banking industry, the private credit market is subject to minimal, indirect regulatory oversight,” the senators wrote in a letter to the Fed’s Michael Barr, FDIC Chairman Martin Gruenberg and Acting Comptroller Michael Hsu. “The lack of transparency in this market obscures its true size and risk.” The senators emphasized risks posed by the growing ties between the traditional banking market and private funds. They warned that it could “pose hidden dangers to the banking system, especially as most of the private credit market has not endured a full economic cycle with elevated default rates.”