Debt issued to fund mergers and acquisitions has reached a record high, as companies look to take advantage of cheap financing ahead of a rise in US interest rates.
The debt financing surge comes as mature companies face a growth challenge, given meagre revenue expansion. Earnings for S&P 500 companies are on track for their worst performance since the second quarter of 2009, under pressure from a strong dollar and a slowdown in China’s economy that has also weighed on commodity prices.
Low borrowing costs, driven down by central banks’ quantitative easing programmes, provide an opportunity to create a return for shareholders via debt-financed mergers and acquisitions, as well as share buybacks.
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