Corporate debt stress testing: A global analysis of non-financial corporations
High-yield corporate and leveraged loans have grown substantially over the past decade.
However, the COVID-19 pandemic means downside risks are rising alongside expectations
of severe negative impacts on corporate earnings and economic growth. The proportion
of leveraged corporate debt exposed to such downside risks has become a key concern.
This paper assesses the magnitude of indebtedness of leveraged non-financial companies
and identifies the share of debt related to the riskiest firms. A stress test analysis
examines the sensitivity of corporate debt to potential macroeconomic and financial
shocks. The results show a sharp deterioration in the credit quality of firms, particularly
in the United States and Emerging Market Economies (EMEs). Under stressed conditions,
all these countries, China included, would experience a sharp rise in the number of
firms considered at risk or distressed due to deteriorating cash flows and the inability
to make interest payments, thereby becoming more likely to default.
Published on August 06, 2020
In series:OECD Working Papers on Finance, Insurance and Private Pensionsview more titles