June 27 - Corporate America has learned its lesson from its past debt mistakes-and many sectors have avoided the mistakes of the past, according to Moody's Analytics Ben Garber.
As rates -- companies could face higher borrowing costs would -- to the question. What kinds of companies at a most vulnerable and why Moody's analytics economist and Barbara joins us with some answers so welcome bad. Thanks for having me how dependent are corporations on this less expensive credit right now. Well fortunately since rates have been low for so long. Most corporations have been able to refinance since it. Long term debt so that affected interest rates in recent recently. Most industrial firms are able to ride out any short term turbulence in the market. And in fact you -- it it kind of learned a lot of lessons from the past in terms of how they structure their debt. -- the commercial paper short term debt marketer fraction the size of where they were before the crisis and they have much larger. Portion of their total borrowings are made up of longer term debt. That's set up in terms of companies that borrow up for a year or more. The biggest one is finance Q talk a little bit about that and their exposure. Yeah specifically the banking sectors heavily reliant on short term financing. So when interest rates rise as they are now. You think. The deposits that are wrong at these banks become more expensive to maintain. More expensive to Rick two tracks of that racist their cost of funding. Also they've made a lot of money in refinancing mortgages and other rates are higher a lot of that revenue was going away. Other sectors that are a lot include Telecom computers and electronic health care. What do these have -- -- -- -- are they using this money for specific purposes that they would have to curtail if they don't borrow it -- get access to credit the same way. Well there's several purposes that these companies using a lot of it is for capital expenditures particularly in. These heavy heavily intense industrial industries. But also a lot of these companies have been using just the finance. Shareholder friendly activities such as share buybacks and dividends. So if credit is more expensive that type of activity might be curtailed. And affect you bring up the U product to be when we talked before hand them the example of apple. As a case where they get that. Yet they issued heavy amounts of debt for the first time in their history they used it to five instant message stock buy back. So with that type of activity. You know it. It's something that. It's more difficult to do and tighter credit or. Other sectors include utilities and oil and gas can you talk a little bit about. Why they're so tied to the credit markets. Sure some of these heavy industrial. Firms in oil and gas sector perhaps Telecom as well. They have to build up message into infrastructure and cars a lot of investment to. Expand their business and maintain their existing operations so. -- in -- win. Cost of borrowing goes up they have to reevaluate. What type projects they can do. Looking at the overall picture how does this impact the economy and the economic recovery as. These companies have to sort of rethink the way that they approached their credit strategy. Well the positive thing about the higher interest rates -- a lot of that -- into reaction to a brighter out long term outlook for the economy. So if these types of economic results come to for ration. Companies should be feel better about boring and investing on the assumption that they will get stronger returns on their capital and future. So -- it's not necessarily the worst thing that comes with the battered me. That's exactly right -- -- thank you so much. Thank -- our thanks to Moody's analytics and our brand Bobbi -- this is writers.