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Corporate leverage returns to pre-pandemic levels
Reuters reports that U.S. and European companies have marked another milestone in their road to recovery from COVID-19, seeing their debt levels relative to profits tumbling to the lowest since before the pandemic erupted in 2020.
Net leverage, an important gauge of a company's financial health, refers to net debt as a proportion of EBITDA.
At U.S. companies rated investment-grade, it fell in the second quarter to the lowest since 2018, according to BNP Paribas, while European leverage is the lowest since 2019.
The trend is a good sign for corporate debt markets, where the lowest-rated segments are outperforming this year, signalling normalising credit quality.
Earnings at S&P 500 and STOXX 600 companies are already some 40% above pre-pandemic levels, according to Refinitiv, with the vast majority of companies beating forecasts.
Leverage has fallen fastest at U.S. firms with "junk" credit ratings, or below the BBB- threshold, where it is nearly at pre-pandemic levels, BNP's data shows.
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