The pernicious impact of higher for longer on corporate cash flows

As reflected many times in my writings I'll repeat again my worry and focus on the pernicious (defined by Oxford Languages as 'having a harmful effect, especially in a gradual or subtle way') impact of higher rates for longer after 15 yrs of essentially zero. This is a long drawn out process, not an event and because it's not an event, many believe all will be ok because they are not appreciating the cumulative process going on behind the scenes which don't make it on the front page of the WSJ everyday. That said, positive real interest rates once we get thru this, is a good thing for the healthy, productive allocation of capital. 

To this 'harmful effect', Almost Grant's last Thursday highlighted some credit stats worth mentioning here. In the week before, "S&P Global relayed that the dollar value of debt rated triple C-plus and below swelled to $318b at the end of June, roughly double the year ago tally and the largest such figure since May 2020, as downgrades to that ratings threshold accelerated to their fastest pace since the plague year."

Here's more, "Meanwhile, 18.3% of the single B- rated cohort currently either sports a negative outlook or is on S&P's watch list, compared to 8% a year ago, suggesting 'that downgrades to triple C-plus and below will continue,' the rating agency warns. 

Here is some info from Moody's last week on corporate credit said Almost Grant's, they are "projecting that average interest coverage - the ratio of EBITDA less capital expenditures to interest expense - within its universe of 305 singe B- rated North American corporate bond issues will shrink to .91 times by December 31 from 1.32 y/o/y and 1.54 times in the middle of 2022. The tally of such issuers unable to generate sufficient cash to cover their interest bills will reach 188 by yr end, Moody's predicts, more than double the 89 seen at the end of 2022, while the ranks of those sporting interest coverage about 1.5 times will shrink to 32 from 115."