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

44 Pages Posted: 5 Jan 2021

See all articles by Carlos Caceres

Carlos Caceres

International Monetary Fund (IMF)

Diego Cerdeiro

International Monetary Fund (IMF)

Dan Pan

International Monetary Fund (IMF)

Suchanan Tambunlertchai

International Monetary Fund (IMF)

Date Written: November 1, 2020

Abstract

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.

JEL Classification: C10, C50, G30, G33, G28, G23, E42, G21

Suggested Citation

Caceres, Carlos and Cerdeiro, Diego and Pan, Dan and Tambunlertchai, Suchanan, Stress Testing U.S. Leveraged Corporates in a COVID-19 World (November 1, 2020). IMF Working Paper No. 20/238, Available at SSRN: https://ssrn.com/abstract=3758071

Carlos Caceres (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Diego Cerdeiro

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Dan Pan

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Suchanan Tambunlertchai

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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