The Looming Corporate Debt Bubble

The Looming Corporate Debt Bubble

As we exit the COVID-19 pandemic, the economy appears to be aggressively recovering, fueled by pent-up consumer demand, low interest rates and cash from government stimulus programs. First quarter GDP grew at 6.4%. The Biden Administration just announced a $6 trillion budget, and currently negotiating with Congress for an infrastructure bill which will add another $1 – $2 trillion into the economy over the next several years. While largely positive, this combination has raised concerns about inflation as the prices of commodities, residential real estate, and basic food staples, transportation and travel are increasing. The Consumer Price Index rose 4.2% in April, the largest increase in twelve years.

Due to historically low interest rates, investors seeking higher yields are pouring cash into equities, real estate and alternative investments, such as cryptocurrencies, raising asset bubble concerns. The S&P 500 trailing twelve months (TTM) PE ratio is 31.36 vs. the thirty year average – 23.32. The median existing home price in April was $314,600, 19% year over year increase. Even with recent correction the crypto-currency market is now roughly $1.5 trillion, up nearly 600% from a year ago.

Less widely discussed however is the increased debt levels that corporations have taken on over the last ten years.

According to the Federal Reserve and Securities Industry and Financial Markets Association, large U.S. companies now face the highest levels of debt on record – more than $10.5 trillion. This figure doesn’t include small and middle market company debt estimated to be an additional $5 trillion.

Nonfinancial Corporate Business; Debt Securities

Source:  Federal Reserve Economic Data| FRED| Federal Reserve Bank of St. Louis 

While the coronavirus pandemic contributed to increased borrowing levels (nonfinancial corporate debt outstanding has grown by $1 trillion in two years), because of historically low interest rates, companies have been increasingly accessing cash through the debt markets since 2008 economic crisis.


Ten-year treasury yield:

10 Year Treasury Bond Yield

Source: Federal Reserve of the United States

Low interest rates have encouraged companies to borrow, but instead of funding business investment, in many cases the money was used for share buybacks to bolster share prices. According to JPMorgan Chase (Harvard Business Review, Why Stock Buybacks Are Dangerous for the Economy, Jan 2020) roughly 30% of stock buybacks in 2016 & 2017 were funded by corporate bonds. The International Monetary Funds’s Global Financial Stability Report, issued in October 2019 highlights “debt-funded payouts” as a form of financial risk-taking by U.S companies that “can considerably weaken a firm’s credit quality”. The authors conclude that “when companies do these buybacks, they deprive themselves of the liquidity that might help them cope when sales and profits decline in an economic downturn.”

This has left many companies with less flexibility to weather interest rate increases, or an economic contraction.

Non-financial corporate debt now stands at 40% of GDP:

Corporate Debt as % of GDPSource: Informa Financial Intelligence


Non-Financial Companies with Long-Term debt:

Nonfinancial Companies' Long-Term Debt

Source: “HowMuch.net, a financial literacy website”

The economic growth forecast for the second quarter and remainder of 2021 are positive. For federal budgeting purposes, the Congressional Budget Office forecasts 2021 real GDP growth rate at 5.6%. The highest since 1984 when the GDP annual growth was 7.24%.

Given the increased liquidity and consumer demand, the Federal Reserve will have the difficult task of managing interest rates to reign in inflationary pressures. Higher interest rates could have the dual impact of increased debt service levels and slowing the economy, both of which would negatively impact a highly leverage business.

As the saying goes “Everything thing is fine, until it’s not”. Companies will have to continue to diligently monitor credit even as the economy improves. Trade credit insurance and “Put” option contracts are two tools to assist financial executives evaluate credit risk and protect their balance sheet.

Credit Insurance

Trade credit insurance can be an integral part of a comprehensive credit evaluation and risk management strategy. Credit insurance protects the seller from buyer nonpayment due to insolvency or slow-pay. Credit insurers maintain extensive credit databases and actively capture, update and monitor debtor credit information. They often provide early notification if a debtor’s credit quality deteriorates, or financial performance declines. This information helps credit management professionals determine if, or how much, credit can safely be extended to a buyer.

“Put” Option contract

If a debtor is uninsurable (debt is rated CCC+ or lower), a Put option contract might be available. Put option contracts are non-cancelable and protect the seller if the debtor files for bankruptcy during the contract term. The contract terms are generally based on debtor credit quality, tenor and amount. Put option contracts have been limited to debtors with publicly traded debt. However, with recent changes in the Put option market, they can now be written on private debtors as well if financials are available.

Since 2004, Securitas Global Risk Solutions has helped clients develop credit and political risk solutions. As independent trade credit and political risk specialists, we are focused on developing comprehensive solutions that meet the needs of our clients. Please feel free to call us with any questions, or if we can be of any assistance.


William Lazonick, Mustafa Erdem Sakinc, and Matt Hopkins. “Why Stock Buybacks Are Dangerous for the Economy.” Harvard Business Review, Jan 7, 2020, pages 2-3

HowMuch.net. a financial literacy website

Federal Reserve Bank of St. Louis

Congressional Budget Office, Nonpartisan Analysis for the U.S. Congress

Let’s Get in Touch:

Telephone: 484-595-0100

Fax: 484-582-0111

Recommended News

Let’s Get in Touch


900 West Valley Road Suite 701, Wayne, PA 19087

Call Us


Securitas Global Risk Solutions, LLC. Launches Securitas India

Securitas Global Risk Solutions, LLC. Launches Securitas India

New Venture to Address Growing Demand in India for Specialized Real Property Title Solutions 

July 8, 2021 – Securitas Global Risk Solutions, LLC, (“Securitas”) a specialty credit and political risk insurance brokerage based in Wayne, Pennsylvania announces the launch of Securitas Global, LLC (“Securitas India”), a new corporate initiative to offer land title solutions, cross border investment protection, and land portfolio management specifically for the Indian market. Expanding on Securitas’ long-standing record of helping clients manage their credit and political risk needs locally and internationally, Securitas India furthers the mission by providing title and political risk solutions for a range of Indian and international clients including: 

    • International and local developers 
    • Mortgage lenders in India 
    • Insurers and international re-insurers 
    • Private equity funds and foreign direct investment 
    • Development Finance Institutions (DFI) and Export Credit Agencies (ECA)

Why Securitas India?  With nearly 10 million people in India migrating to cities each year, India’s current land titling system does not support the surging growth.  This is an impediment to new investment, and lacks consistency, transparency and security. India’s backlog of land disputes has put many major infrastructure projects on hold and stifled the country’s economic potential.  A recent article in Bloomberg notes that the Indian government is working to reform the land titling system through a model bill that will guarantee the accuracy of land titles, require states to computerize land records, and establish tribunals to resolve the backlog of land disputes within three years.  Land titling reform carries the potential for an investment boom and considerable job growth.   

“India’s real estate market is set to grow by nearly $800 billion this decade. There is a clear need for the quality risk and titling services Securitas India can provide to facilitate investment and business certainty in India.”

-Shekar Narasimhan, Co-Founder 

Securitas India

As land transactions increase in the coming years, Securitas India will provide solutions to support the dynamic real estate sector via tailored insurance products, project monitoring and transaction management. Our expertise and client specific solutions will increase investor confidence and de-risk all aspects of the real estate finance and development continuum. Our team of professionals in the United States and India, brings over 100 years of experience in title surety, risk cover and real estate transaction monitoring and management.

Securitas India will be assisted in its efforts by Trimble Inc., a leading technology solutions provider of global positioning, modeling, connectivity, data analytics and land solutions.   

Securitas India and Trimble Partner

 For more information or to set up a consultation, contact Securitas at 484.595.0100 or at https://www.securitasglobal.com/contact-us/ 

About Securitas 

Since 2004, Securitas Global Risk Solutions (“Securitas”) has helped clients worldwide develop credit and political risk transfer solutions that provides value on numerous levels.  As an independent trade credit and political risk insurance brokerage, Securitas is focused on developing comprehensive solutions that meet the needs of clients, ensuring complete understanding of policy wording and delivering excellent responsive service. 

About Trimble 

Trimble is transforming the way the world works by delivering products and services that connect the physical and digital worlds. Core technologies in positioning, modeling, connectivity and data analytics enable customers to improve productivity, quality, safety and sustainability. From purpose-built products to enterprise lifecycle solutions, Trimble software, hardware and services are transforming industries such as agriculture, automotive, construction, geospatial and transportation. For more information about Trimble (NASDAQ: TRMB), visit:  www.trimble.com. 

About Trimble Land Administration 

Trimble’s Land Administration solutions automate and integrate land registries, cadastral mapping, and the permitting and licensing of land for surveyors, governments, and businesses worldwide. Through the integration of a broad portfolio of technologies with workflow management tools, and consulting services, Trimble provides a fully configurable, scalable solution to help drive the efficient administration of land and its associated transactions, rights, and agreements. 

    Recommended News

    Let’s Get in Touch


    900 West Valley Road Suite 701, Wayne, PA 19087

    Call Us