Monday, January 9, 2023

Today we conclude our series on corporate debt with one other important audience: the CFOs and other corporate finance executives who manage all those debt instruments for their companies.

When the time comes for those executives either to refinance old debt or to secure new debt, they’ll want to know what a fair interest rate might be. To consider that question, the crack Calcbench research team went back to the 22 large, non-financial companies in our sample group and compiled a dot-plot chart of corporate debt interest rates based on the year those debts are due.

The results are in Figure 1, below.

This chart tells us a few things. For example, we can see that most companies in our sample group have a lot of debt coming due in the next five years, and the interest rates on that debt are somewhere in the range of 3 to 4 percent; that’s the cluster of dots in the lower-left quadrant. A fair number of them also have debt due many years into the future, with interest rates more in the 4 to 5 percent range. A few debt instruments are coming due quite soon and have high interest rates, closer to 7 percent.

CFOs (or, more precisely, the junior financial analysts working for the CFOs) could perform a similar dot-plot analysis of your own, using companies comparable to your own for a more accurate sense of what they are paying — and, therefore, what might be a fair interest rate for you to pay, too. Then you can take that information to the negotiating table when you meet with our lenders.

To be clear, our dot-plot chart above is only a crude demonstration of that point. We consolidated all 22 of our sample companies into Figure 1, but they hail from a wide range of industries and credit histories. You’d want to be much more precise in your own analysis.

Then again — Calcbench can help you with that precision! Our previous post explored how you can find and extract company-specific data about debt and interest rates; and the post before that explored how you can find information about debt ratios and other liquidity metrics.

So you could first develop a peer group of, say, companies in your industry and of similar size and debt ratio. Then use our various databases to extract information about those companies’ debt instruments, including interest rates and due dates.

Then pile that data into a spreadsheet and convert it into your very own dot-plot chart. Presto! All that’s left is to print out the chart and staple it to your lender’s forehead.

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