The total debt for nonfinancial US companies rated investment-grade by S&P Global Ratings retreated from a record high set in the first quarter,.
The combined debt among investment-grade and non-investment-grade companies dropped to $8.432 trillion in the second quarter, from $8.517 trillion a quarter earlier. Investment-grade companies trimmed debt by about 0.9% to $6.610 trillion, while companies rated below BBB- by S&P Global Ratings cut debt by about 1.2% to $1.822 trillion, according to S&P Global Market Intelligence data.
Corporate debt levels declined in the second quarter even as benchmark interest rates held steady from April through June. However, market watchers have increasingly heightened their expectations for the US Federal Reserve to begin lowering rates by the end of this year. The Fed’s approach is likely to be guided by recent trends in US employment data, although cooling inflation remains above the 2% target level.
Debt by sector
Although there was a cumulative drop in total debt among US investment-grade companies, debt actually grew in seven out of 10 nonfinancial sectors during the second quarter. Companies in the energy sector saw the largest jump in total debt with a 4.1% increase to $502.03 billion.
The rise in debt among investment-grade companies in most sectors was largely offset by a 12.7%, or $98.87 billion, decrease in debt within the information technology sector.
Meanwhile, among non-investment-grade companies, debt declined in eight of the 10 sectors, led by a 7.7% fall at consumer staples companies. Total debt only rose in the healthcare and energy sectors.
Debt-to-EBITDA ratio
Debt as a share of EBITDA eased alongside the drop in total debt for both investment-grade and speculative-grade companies. From the first quarter to the second quarter, the median debt-to-EBITDA ratio fell to 2.58 from 2.77 for investment-grade companies and to 3.57 from 4.01 for lower-rated companies, according to Market Intelligence data.
Among investment-grade companies, the median debt-to-EBITDA ratio slid for eight of the 10 nonfinancial sectors. Only the ratio of the communication services and utilities sectors increased.
The utilities sector recorded the highest percentage jump in the median debt-to-EBITDA ratio among investment-grade and speculative-grade companies from the first quarter to the second quarter, with the metric rising 18.8% and 16.6%, respectively.
Declines in the median debt-to-EBITDA ratio were led by the materials sector in the investment-grade category, with a 23.4% decrease to 1.91, and by the consumer staples sector in the non-investment-grade category, with a 20.1% drop to 3.26.