Corporations cashing in on cheap debt while they can
As much as people complain about the Fed waiting so long to raise rates, some companies are taking advantage. The Financial Times ran some numbers with the firm Dealogic, which analyzes investment banking trends. It revealed a massive jump in corporate bond offerings this year, especially the so-called “jumbo deals” — bond offerings with more than $10 billion in proceeds.
So far this year, there have been 13 jumbo deals, compared to just three in 2014. Economist J.W. Mason at the City University of New York says that money isn’t necessarily for growth.
“It’s not financing real investment — it’s not financing factories, it’s not financing research and development,” he said. Mason said many companies are using the debt to pay for mergers and acquisitions, or to pay better dividends.
“From a shareholder’s point of view, that’s really just as good as the kind of earnings growth you would see in a more robust expansion,” Mason said.
So is what seems a good strategy for companies a good plan for individuals? Ann Witte, a professor emerita at Wellesley College, and said it depends.
“It might make sense to lock in a good mortgage rate,” she said. “But it doesn’t make sense to take out loans for consumption, unless you are very sure you are going to be able to pay off those loans.”
Because even cheap money eventually has to be paid back.
Stories You Might Like
There’s a lot happening in the world. Through it all, Marketplace is here for you.
You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible.
Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.
