Loans and bonds can be used sensibly to invest but too much debt can be catastrophic for a company, especially if the economy goes south.

Author: Luca Ventura

Expansion, diversification, growth: these things cost money. After the 2008 global financial crisis, there was a universal imperative: get out of debt. The opposite has happened. Central banks around the globe pushed interest rates to historically low levels and companies responded by borrowing more than ever. Not only has corporate debt grown, the quality of that debt has gotten dramatically worse. During the recovery period between 2010 and 2018, Standard & Poor's estimated that the share of investment-grade bonds fell to 78.4% from over 90% during the previous two post-financial crises. The risk is that less solvent companies will not be able to pay up when their debts come due.

How high is that risk? The image of a house of cards falling down comes to mind. In its latest annual Global Financial Stability Report, the International Monetary Fund warned that in a recession half as severe as the 2008 financial crisis risky corporate debt—meaning companies that cannot cover their interest expenses with their earnings—could increase to $19 trillion, equivalent to nearly 40% of total corporate debt in OECD economies. 

Loans and bonds can be used sensibly to invest, hire and increase productivity. However, the side effects of too much easy money can be catastrophic. And while today the majority of the world's biggest corporate borrowers can be trusted to repay their debt, it is also true that even in the most recent past many giants have fallen from grace in the blink of an eye. Just ask General Electric.


1. AT&T 

AT&T is no longer just a phone company. After the purchase in 2015 of Direct TV and the acquisition of Time Warner in 2018, the telecommunications giant was left with a net debt in the neighborhood of $180 billion and the not-so-coveted title of most indebted company in the world. However, AT&T's efforts to gradually reduce debt levels are paying off.

Long-Term Debt   ($ Bil.)

Annual Revenue      ($ Bil.)

Debt Ratings

Industry

    Moody's S&P Fitch  
151 181 Baa2 BBB A– Telecommunications and Consumer Services

2. Softbank

The Japanese tech-investment mammoth owns stakes in WeWork, Sprint, Uber and many other household names. As its portfolio has grown over time, so has its debt. While the investment fund's complex structure makes it difficult to determine how much debt it carries, it is big and difficult enough to repay for global rating agencies to consider it one step below investment grade, or junk. The calamitous IPOs of WeWork and Uber's underwhelming market debut are not helping matters.

Long-Term Debt ($ Bil.)

Annual Revenue ($ Bil.)

Debt Ratings

Industry

    Moody's S&P Fitch  
110 86 Ba1   BB+ N/A Financials

3. Pemex

The state-owned Petróleos Mexicanos (Pemex) is the world’s most indebted oil company and it is in trouble. Oil production fell by almost half since a peak of 3.4 million barrel a day in 2004, its proven reserves have constantly declined, and so have its revenues. The Mexican government's recent effort to reduce the company's outstanding balance bore some fruit, but the general outlook for Pemex remains bleak.

Long-Term Debt   ($ Bil.)

Annual Revenue      ($ Bil.)

Debt Ratings

Industry

    Moody's S&P Fitch  
106 87 Baa3 B– BB+ Telecommunications and Consumer Services

4. Comcast

The largest cable TV company and Internet service provider in the United States has been on 20-year shopping spree. In 2002 it acquired the assets of AT&T Broadband, in 2005 United Artists and its parent company MGM, in 2011 NBCUniversal, in 2016 DreamWorks Animation. However, it was with the $40 billion takeover by British pay-TV group Sky that the company entered the $100 billion debt club. Comcast has been diligent in cutting operating costs ever since but—amid competition from online streaming players such as Netflix and Amazon—increasing its the paid TV subscriber base has been challenging.

Long-Term Debt   ($ Bil.)

Annual Revenue      ($ Bil.)

Debt Ratings

Industry

    Moody's S&P Fitch  
103 109 A3 A– A– Telecommunications and Consumer Services

5. Anheuser-Busch InBev

Belgian brewer Anheuser-Busch InBev has built a sprawling beer empire on debt. Over the past two decades, it has launched a slew of acquisitions that added hundreds of brands to its portfolio, making it the undisputed leader in the industry. However, the takeover of rival SABMiller in 2016 left the company with over $100 billion in debt. Today, Anheuser-Busch InBev controls about 25% of the world beer market. To pay off that debt, consumers will have to drink a lot more beer than they are today.

Long-Term Debt   ($ Bil.)

Annual Revenue      ($ Bil.)

Debt Ratings

Industry

    Moody's S&P Fitch  
102 55 Baa1 A– BBB Consumer Goods

6. Ford Motor Company

Drowning in debt, low on cash and facing increasing competition, the once-glorious American carmaker is inches away from bankruptcy. In September 2019, Moody’s lowered Ford's credit rating Ba1, below investment grade, quickly followed by S&P, which downgraded it to BBB–, just one notch above junk. Not only Ford is going to find more difficult to obtain funding in the future, but as most investment and pension funds are not allowed to hold junk bonds as part of their portfolio, so further downgrades could trigger a sell-off and increase the risk of Ford defaulting on its debt.

Long-Term Debt 

 ($ Bil.)

Annual Revenue 

($ Bil.)

Debt Ratings

Industry

    Moody's S&P Fitch  
101 156 Ba1 BBB– BBB Industrials

7. Verizon

In 2013, Verizon launched the largest corporate debt sale in history: $49 billion worth of bonds used to fund the buyout of partner Vodafone Group’s 45% stake in Verizon Wireless, the largest mobile telecommunications provider in the United States. While the company has taken significant steps to shrink its debt, it also had to divert resources into building out its 5G wireless infrastructure. If everything goes according to plan, the expected economic boom from the new networking standard will  speed up the company's debt reduction.

Long-Term Debt   ($ Bil.)

Annual Revenue      ($ Bil.)

Debt Ratings

Industry

    Moody's S&P Fitch  
101 132 Baa1 BBB+ A– Telecommunications and Consumer Services

8. Apple

With a cash reserve of over $200 billion, why would Apple borrow money? Answer: Because it is cheap. Just last year, Apple sold $7 billion in 30-year bonds on which it will pay just under 3.0% in interest. The tech giant takes advantage of low-interest rates to bolster its cash flow, fund share buybacks, pay dividends. Another very good reason for Apple to continue borrowing is that issuing debt remains cheaper than bringing back home all the money that the company keeps in its international reserves.

Long-Term Debt   ($ Bil.)

Annual Revenue      ($ Bil.)

Debt Ratings

Industry

    Moody's S&P Fitch  
92 267 Aa1 AA+ N/A Telecommunications and Consumer Services

9. General Electric

The company founded by Thomas Edison in the late 19th century back has experienced a long, dramatic decline. In 2000, the venerable industrial conglomerate was the most valuable company in the world; by 2018, it was booted from the Dow Jones Industrial Average. A long string of ill-timed acquisitions coupled with a global recession meant that paying down rising debts became impossible. Last year, General Electric announced it was selling part of its healthcare division to Danaher for nearly $20 billion to put towards debt reduction, almost a quarter of the total overhang. 

Long-Term Debt

($ Bil.)

Annual Revenue

 ($ Bil.)

Debt Ratings

Industry

    Moody's S&P Fitch  
91 95 Baa1 BBB+ BBB+

Industrials


10. Evergrande Group

With projects in over 200 cities ranging from condos to theme parks, one of China’s biggest—and the most indebted—property developer just burns through cash. In recent years, Evergrande Group's investors have been bruised by the company's stock performance and become doubtful about the its ability to repay debts. Even less encouraging has been the firm's planned strategy to navigate this difficult phase. The company announced it wants to become the world’s "largest and most powerful" electric-vehicle maker within the next 3—5 years. 

Long-Term Debt   ($ Bil.)

Annual Revenue      ($ Bil.)

Debt Ratings

Industry

    Moody's S&P Fitch  
81 70 B1 B+ B+ Financials