US companies are finding it ever more difficult to cover the cost of their debt repayments.

The median interest coverage ratio of companies rated investment-grade by S&P Global Ratings sank in the first quarter to 6.38 from 7.06 in the previous quarter, according to the latest S&P Global Market Intelligence data.

Rising interest rates have pushed up borrowing costs for companies across the board. Investment-grade companies are pulling back on growth plans and focusing on deleveraging, while their lower-rated peers face growing risks from soon-to-mature debt loads.

Receding solvency cushion

The ratio — a closely watched measure of solvency calculated by dividing earnings before interest and tax by the cost of a company's debt-interest payments — has slumped sharply since a peak of 8.97 in 2022.

The cost of interest payments is also rising as a percentage of earnings for weaker companies with credit ratings below BBB-. The median ratio of non-investment-grade companies fell to 2.89 in the first quarter, down from 3.28 at the end of 2022.

The median ratio for non-investment-grade companies fell in nine out of 10 sectors. The materials sector registered the sole increase, with the median ratio rising to 3.68 from 2.88.

Higher-quality companies deleverage

The median debt-to-equity ratio — a measurement of corporate leverage determined by calculating total liabilities as a percentage of shareholder equity — of investment-grade companies fell to 87.0% in the first quarter of 2023 from 88.7% in the fourth quarter of 2022.

The deleveraging through 2021 and 2022 has slowed in the last three quarters with the median ratio for companies not rated investment grade ticking up in the quarter to 125.7% from 123%.