The corporate debt wall pointing to 2026

The corporate debt wall pointing to 2026 as the origin of the next crisis

When does the recession arrive? The question has gone three years without an answer, and forecasts have expired one after another. The most developed thesis on the matter does not point to public debt —that, it is argued, will take longer to take its toll— but to a corporate debt crisis whose foundations have been strengthening since 2020. A repeat of 2008 is not expected, but an episode of considerable proportions is expected when refinancing time comes. The calendar points to a specific range: between 2026 and 2028.

Already in 2024, with the European economy sending mixed signals and central banks tempering their rhetoric, the hard numbers remain the same as a year earlier: plenty of maturities ahead and a cost of debt that looks nothing like the last decade. The detail of why and when the rope tightens is what separates alarmism from arithmetic.

The bargain-basement refinancing no one wants to repeat

After the impact of ELbichito-19, governments and central banks injected liquidity on an unprecedented scale to prop up the economy. Much of that money was not channeled efficiently, but it served a very specific purpose: it enabled massive debt refinancing at extraordinarily low rates. Even lower-quality corporate debt could be placed at rates close to 4%, while the bulk of corporate debt was financed at between 1% and 1.5%.

Two consequences. First, companies do not face an urgent need for financing: their maturities are already covered at bargain prices. Second, the Federal Reserve has been raising rates since early 2022 and the financing cost for the most fragile companies has not tightened as much as in previous cycles. Yet.

Interest at 9.1% of income: the figure that defuses panic

Corporate interest costs as a percentage of net income stand at 9.1%, the lowest level since 1956. In 2008, that same percentage reached 60%. And interest expenses as a share of U.S. corporate profits remain near their lowest levels in forty years, thanks to many companies locking in long-term financing at low rates.

That would explain why there is no urgency... and why it pays to look at the trend, not the snapshot. The number of companies whose interest expenses exceed their cash income has grown drastically; the decline from its peak is merely a pullback within a clear trend. Add to that a recurring fact: around 25% of small-cap companies have not posted profits in the last three years. Since 2008, Western growth —mediocre even in the good years— has been sustained by debt, that is, by bringing money from the future into the present.

2026-2028: The maturity wall

The operative question is not whether companies can hold out today, but what happens when they have to return to the market. Maturities point to a window from 2026 to 2028, just when the rate environment will have nothing to do with that of 2020. And the doubt is twofold: whether they will be able to refinance at rates remotely similar to those of that time and whether they can absorb the projected increases.

The risk is not a one-off bankruptcy, but the coincidence of thousands of refinancings with an economy growing slowly. By then, the post-2008 paradigm —that of not letting anyone fail, the socialist capitalism spoken of with a smirk— will be subjected to its most demanding test.

Add to the maturities other fronts that muddy any forecast: the health of China's economy, increasingly questioned, and the open wars in Ukraine and Gaza. Two investors with opposing philosophies, Michael Burry and Warren Buffett, agreed on one thing: they were not exactly optimistic for 2024.

Germany is already in recession; Spain will feel it later

There are two ways to look at the map. The first relies on a simple fact: the European quarterly GDP published on October 30 was negative, and with two consecutive quarters of decline, the technical definition of recession is met. That is not far-fetched, though it does not imply that the stock market will plunge or that unemployment will soar to 10%.

The second focuses on asymmetry. Germany is in recession, while Spain, with an economy that produces goods at the start of the value chain and is highly dependent on tourism and low-value-added services, would feel the effects later. In that reading, the crisis would not distribute the blows equally.

Consumer skepticism: queues and grocery baskets

Not everyone buys the narrative. Some recall that the great crisis was announced for 2022, then 2023 and then 2024, while department stores build up queues, restaurants have waiting lists of weeks and the S&P 500 came within 4% of its all-time highs. The stock market, it is insisted, runs ahead of the economy and sometimes along different paths: the economy goes one way and the market another, and whoever called the bottom in October 2022 or advised buying banks in the midst of the March 2023 storm did not do badly.

On the other side of the scale is domestic evidence. The shopping basket that cost 80 euros has risen to 130. The purchasing power of an average salary has fallen to 1996 levels, with a decline of 4% in a single year despite agreed wage increases. Those are prices, not expectations.

Against the financial thesis, some argue that the current order will die from Peak Oil, barring a miracle, while others respond that the end of oil will come from the demand side, with new fields —pre-salt among them— and energy alternatives.

With this outlook, the prudent thing would be for the 2026 maturity wall to turn out to be just a boast from pessimistic analysts. We have been waiting for the crisis for several years. The only thing missing is for it, when it arrives, not to coincide with the next calendar update.