The Calcbench research team has done it again, churning out another analysis of corporate debt soon coming due — and how much the refinancing of that debt at today’s high interest rates might crimp corporate earnings.
You can download the complete report on our Research page, but the gist of it is that dozens of companies are likely to face painfully higher interest costs next year as they refinance debt coming due in 2024. Those higher costs, in turn, could squeeze earnings per share by as much as 2.9 percent.
For example, Hewlett Packard Enterprise ($HPE) has $1 billion of debt coming due in 2024. That debt carries an interest rate of 1.45 percent. If HP decides to refinance that debt, it’s likely to face a new interest rate of 5 percent or higher. If we assume that new rate to be 5.44 percent (recently the rate on the one-year treasury note), that would lead to an extra $39.9 million in annual interest expense.
If we then use Q2 2023 as a baseline, that extra $39.9 million would cut HP’s trailing twelve month EPS ($0.84) by $0.03, or 3.7 percent.
HP is by no means alone. The Calcbench research team found more than 50 companies that have disclosed debt coming due in 2024, all of them with impressively low interest rates today that won’t last much longer. So what happens then?
The forces driving this pressure are no longer news. Companies racked up debt during the low-interest rate era of the 2010s and early 2020s. That era ended in 2022 when the Fed jacked up interest rates to fight rising inflation. Now that debt from the 2010s is starting to come due. Companies can either (a) pay it off; or (b) refinance the debt at today’s higher rates.
To quantify all this, the crack Calcbench research team used our Segments and Breakouts page to examine the debt disclosures of S&P 500 companies. We found 55 firms with debt coming due in 2024. In total they owe more than $105 billion, at an average interest rate of 2.8 percent.
If those companies all refinanced their debt at 5.44 percent (that’s the rate we used for our model, based on the one-year treasury bill), that would add a total of $3.04 billion to their interest expense. Using Q2 2023 as a baseline, that additional expense would reduce average earnings per share by $0.10, or 2.9 percent.
But wait, there’s more! Among those 56 firms, we found 19 who, as of mid-2023, did not have enough cash on hand to cover their debt coming due. So those firms would either have to refinance at the higher interest rate, or sell assets to raise cash, or some combination of the two. Table 1, below, shows the 10 firms with the largest deficits between cash on hand and debt coming due.
The rest of our report explores some specific examples of corporations with 2024 debt, and how refinancing might cut into their EPS; we look at Home Depot ($HD), Tyson Foods ($TSN), Nvidia ($NVDA), and others. The report also includes a list of all 55 firms in our study, plus pointers on how you can use Calcbench tools to perform similar research on whatever companies you follow.
If you have a suggestion for other research we should dig into, drop us a line at email@example.com any time.