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Source: International Monetary Fund

Stress Testing U.S. Leveraged Corporates in a COVID-19 World

Author/Editor:

Carlos Caceres ; Diego A. Cerdeiro ; Dan Pan ; Suchanan Tambunlertchai

Publication Date:

November 13, 2020

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

This paper analyzes a group of 755 firms, with aggregate indebtedness of US$6.2 trillion, to assess the solvency risks and liquidity needs facing the U.S. corporate sector based on projections of net income, availability and cost of funding, and debt servicing flows under different stress test scenarios. The paper finds that leveraged corporates account for most of the potential losses arising from the macroeconomic stresses associated with the COVID-19 crisis, with a concentration of these losses in the oil and gas, auto, and capital and durable goods manufacturing sectors. However, potential losses from corporate debt write-downs appear to be a fraction of banks’ capital buffers and, given the size of the leveraged segment and the relatively long duration of that sector’s debt, the near-term liquidity needs of these corporates appear modest. Corporate stresses could, however, amplify the current economic downturn—as firms cut investment spending and reduce employment—potentially giving rise to significant indirect losses for the financial system.

Series:

Working Paper No. 2020/238

Frequency:

regular

English

Publication Date:

November 13, 2020

ISBN/ISSN:

9781513561134/1018-5941

Stock No:

WPIEA2020238

Format:

Paper

Pages:

43

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