European Sub-investment Grade Companies Hit Hard by Soaring Debt Burden

Sub-investment grade European corporates are experiencing a severe increase in financial stress and a dramatic fall in profitability, while their A-rated counterparts are seeing only a marginally increased financial burden. This is according to research by Demica, the securitisation consultancy and technology services company. Financial pressure for last year was measured by using a model based on interest cover – the relationship between profits and interest payments on debt commitments – and was compared year on year. The study revealed that financial stress has increased for all rated companies in Europe. However, the increase has been marginal for A-rated companies (3%), substantial for B-rated companies (36%), and punishing for sub-investment grade companies (49%). Demica says an increase in leveraged buy-outs is to blame for the heightened financial pressure. Declan Lynch, executive vice president at Demica, commented: ‘Sub-investment grade corporations across Europe are being hit hard by the high cost of servicing current debt commitments.’

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