One week ago, we closed the book on the long-running debate whether gross (and net) leverage is the highest on record, when we showed a chart from Goldman according to which net debt/EBITDA for all companies (with or without energy) is the highest on record, surpassing the previous credit bubble peak by nearly 0.3x turns. Furthermore, as Goldman said that the time, “given we are 8+ years into an economic expansion, we believe it’s prudent to also view this via a ‘normalized EBITDA’ lens (i.e., median NTM 2007Q1-2017Q1). On this basis, aggregate leverage (ex- Energy) would move up to 2.1x, roughly 20% higher than current levels and 18% above the prior cycle peak.”
Of course, none of the above matters right now; in fact if anything as Friday’s oversubscribed Tesla bond sale as well as yesterday’s massively oversubscribed sale of Amazon bonds confirmed, investors still can’t get enough of corporate debt.
But how much longer can this relentless re-leveraging continue before something snaps, or before someone finally pays attention? According to BofA’s chief credit strategist, Hans Mikkelsen, the answer is 2018.
This post was published at Zero Hedge on Aug 16, 2017.