US Companies Face Profit Challenges Refinancing 2024 Debt Amid Rising Rates

Last updated: November 19, 2023

Some of the largest US companies could see their profits take a hit if they refinance their 2024 maturities at current rates, with about one-third of them lacking the cash to repay upcoming debt.

US Companies Face Profit Challenges Refinancing 2024 Debt Amid Rising Rates
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Non-financial S&P 500 companies have $107.7 billion in debt maturing next year, with an average interest rate of 2.8%, according to Calcbench. Refinancing at a higher rate of 5.44%, like the one-year Treasury bill rate in early November, would add $3.09 billion in interest expenses.

Using trailing twelve-month earnings per share ending with the second quarter as a baseline, this higher interest expense would reduce the average EPS for 57 businesses with 2024 debt by $0.11, or 2.92%, according to Calcbench.

Many of these firms need to refinance or sell assets to manage their upcoming debt maturities.

Approximately two-thirds of companies have enough cash to repay their 2024 debt, but 19 out of 57 don’t, and these numbers may have changed in the most recent quarter.

US firms have been actively raising new debt as Treasury rates declined, with highly rated companies raising $1.115 trillion through November 13, up 1% from the previous year.

Calcbench’s analysis was conducted up until November 6.

One company facing a cash shortfall for 2024 maturities is Kinder Morgan Inc., which had $1.9 billion in debt coming due next year and $497 million in cash at the end of the second quarter, which dropped to $80 million in the third quarter.

Philip Morris International Inc. also anticipates higher financing costs next year.

US companies across industries are deciding whether to refinance their upcoming maturities or wait for lower interest rates. The Federal Reserve left rates unchanged in early November.

Costco Wholesale Corp. and Boston Scientific Corp. are among those that may see a decrease in EPS if they refinance at current rates.

Boston Scientific, with $500 million maturing next year and over $1 billion in early 2025, could face an EPS decrease of 0.83% in 2024, followed by a 4.14% impact in 2025, as projected by Calcbench.

Costco is considering repaying a $1 billion bond maturing in 2024 with available cash, according to CFO Richard Galanti, who stated that refinancing at current rates does not seem sensible.

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