Economy

A flood of corporate debt could make the economic recovery more difficult – CNN

Published

4 years ago

April 26, 2020

That added debt could make an economic recovery much more difficult. Companies will have to pay down those borrowings, forcing them to scale back planned investments, defer capital spending projects or postpone bringing back employees they let go during the crisis.

“If a company is borrowing just to survive through the pandemic, that borrowing could in the future impact their ability to invest in other things,” said Will Caiger-Smith, associate editor of research firm Debtwire. “It’ll be a headwind to the recovery. They won’t just answer to their shareholders or employees, they’ll have to answer to their lenders.”

The value of investment-grade corporate bonds issued in 2020 so far by companies outside the financial sector is $425 billion, according to data from Refinitiv. That’s nearly twice what was issued a year ago at this time. More than $300 billion of that came in March and the first three weeks of April alone — the two biggest months for corporate bond issues on record.

That increase in corporate debt is “very broad based,” said Matt Toole, the deals intelligence director at Refinitiv. “At the point where your industry is shut and [has] no date to come back, [they’re working to] insure that they are keeping adequate levels of cash.”

The amount of non-investment-grade debt, or junk bonds, has not grown as fast, as investors shied away from riskier debt early in the crisis.

“The high-yield market was essentially shut for about three weeks in a row in March,” said Toole. But now that debt is growing again, adding more than $91 billion in that riskier debt to balance sheets.

Companies have also turned to lines of credits they had arranged before the crisis, sometimes years ago. They have drawn down most, or in many cases all, of the cash available to them. More than 50 companies have accessed at least $1 billion from their credit lines in the last two months, according to Refinitiv.

Since March 11, companies have drawn down more than $220 billion in cash on existing credit lines, Debtwire estimates. About $52 billion of those draws were by Boeing (BA), General Motors (GM), Ford (F) and Fiat Chrysler (FCAU) alone.

Companies such as those, along with airlines, restaurants, retailers and hotel chains, are trying to make up for the steep plunges in their sales. Exxon Mobil (XOM), hurt by the nosedive in oil demand and prices, has sold $18 billion in bonds.

General Electric (GE) and Disney (DIS), two other companies badly hurt by the virus-inspired shutdowns, each sold nearly $6 billion in bonds.

Healthy companies are adding debt, too

Some companies that are not suffering are also adding debt. Netflix (NFLX), which is growing its revenue and subscriber base as people are locked at home, announced Wednesday that it was adding $1 billion in debt to finance more shows and movies.

“The reason some of them are going to market [with debt offerings], the reason they’re drawing down cash is to be safe,” said Kenneth Emery, senior vice president at credit rating agency Moody’s.

Some of those firms are issuing new debt because rates are extremely low for companies with good credit. The largest debt issue was by Oracle (ORCL), the software company that gets most of its revenue from cloud services and reported improved results before the crisis began. It sold $20 billion in bonds, sying it said it will use those proceeds for “general corporate purposes, which may include stock repurchases, payment of cash dividends on its common stock, repayment of indebtedness and future acquisitions.”

Corporate bonds stood at a record $9.6 trillion heading into 2020, according to the Securities Industry and Financial Markets Association. That’s a 20% increase in just the last five years.

“There was concern about the level of corporate debt even before this,” said Toole.

Last May, Federal Reserve Chairman Jerome Powell gave a prophetic speech in which he warned about the risk posed by the rising amount of corporate debt, especially what would happen in the next economic downturn.

“Business debt has clearly reached a level that should give businesses and investors reason to pause and reflect. If a downturn were to arrive unexpectedly, some firms would face challenges,” he said at the time. “A highly leveraged business sector could amplify any economic downturn as companies are forced to lay off workers and cut back on investments.”

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Economy

Minimum wage to hire higher-paid temporary foreign workers set to increase

Published

2 days ago

October 21, 2024

Anne Joseph

OTTAWA – The federal government is expected to boost the minimum hourly wage that must be paid to temporary foreign workers in the high-wage stream as a way to encourage employers to hire more Canadian staff.

Under the current program’s high-wage labour market impact assessment (LMIA) stream, an employer must pay at least the median income in their province to qualify for a permit. A government official, who The Canadian Press is not naming because they are not authorized to speak publicly about the change, said Employment Minister Randy Boissonnault will announce Tuesday that the threshold will increase to 20 per cent above the provincial median hourly wage.

The change is scheduled to come into force on Nov. 8.

As with previous changes to the Temporary Foreign Worker program, the government’s goal is to encourage employers to hire more Canadian workers. The Liberal government has faced criticism for increasing the number of temporary residents allowed into Canada, which many have linked to housing shortages and a higher cost of living.

The program has also come under fire for allegations of mistreatment of workers.

A LMIA is required for an employer to hire a temporary foreign worker, and is used to demonstrate there aren’t enough Canadian workers to fill the positions they are filling.

In Ontario, the median hourly wage is $28.39 for the high-wage bracket, so once the change takes effect an employer will need to pay at least $34.07 per hour.

The government official estimates this change will affect up to 34,000 workers under the LMIA high-wage stream. Existing work permits will not be affected, but the official said the planned change will affect their renewals.

According to public data from Immigration, Refugees and Citizenship Canada, 183,820 temporary foreign worker permits became effective in 2023. That was up from 98,025 in 2019 — an 88 per cent increase.

The upcoming change is the latest in a series of moves to tighten eligibility rules in order to limit temporary residents, including international students and foreign workers. Those changes include imposing caps on the percentage of low-wage foreign workers in some sectors and ending permits in metropolitan areas with high unemployment rates.

Temporary foreign workers in the agriculture sector are not affected by past rule changes.

This report by The Canadian Press was first published Oct. 21, 2024.

— With files from Nojoud Al Mallees

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Economy

PBO projects deficit exceeded Liberals’ $40B pledge, economy to rebound in 2025

Published

6 days ago

October 17, 2024

Anne Joseph

OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.

However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.

The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.

Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.

The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.

The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.

This report by The Canadian Press was first published Oct. 17, 2024.

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Economy

Statistics Canada says levels of food insecurity rose in 2022

Published

6 days ago

October 16, 2024

Anne Joseph

OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.

In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.

The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.

Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.

In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.

It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.

This report by The Canadian Press was first published Oct 16, 2024.

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