US companies have increased bond issuance with better-rated companies pushing total debt levels higher even as borrowing costs rise.

The total volume of debt issuance by nonfinancial US companies is on track to surpass the total volume for the whole of 2022 with three months of 2023 remaining. Some $505.03 billion of debt has been issued year to date through Sept. 14, compared to $519.77 billion in the whole of 2022, according to data from S&P Global Market Intelligence.

Still, volumes are down sharply from the pandemic years when COVID-19 lockdowns raised the prospect of sharply reduced revenues and moved companies to make a dash for cash. Issuance topped $1.188 trillion in 2020 and exceeded $876 billion in 2021 before the Federal Reserve started raising interest rates, increasing the cost of borrowing.

Piling up debt

The increase in issuance has contributed to total debt held by nonfinancial US companies nearing $9 trillion. Higher-rated companies are responsible for the higher overall debt levels; companies with credit ratings of BBB- or above rose to $6.106 trillion by the end of the second quarter, up from $5.561 trillion in the same quarter a year earlier.

By contrast, companies in weaker financial positions have reduced their debt burdens. Cumulative debt held by non-investment-grade companies, which are rated lower than BBB-, fell for five consecutive quarters to the end of the second quarter to $2.894 trillion.

Earnings growth has outpaced debt buildup for higher-rated companies. The median total debt-to-EBITDA ratio for companies rated investment grade fell to 2.68 in the second quarter, down from 2.84.

The ratio tracks a company's availability of cash flow relative to its debt and is a closely followed metric for investors and rating agencies in assessing a company's probability of default.

The median ratio also fell for lower-rated companies, declining to 2.86 in the second quarter from 3.1 in the first quarter.