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Corporate debt stress testing: A global analysis of non-financial corporations

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  • Caroline Roulet

Abstract

High-yield corporate and leveraged loans have grown substantially over the past decade. However, the COVID-19 pandemic means downside risks are rising alongside expectations of severe negative impacts on corporate earnings and economic growth. The proportion of leveraged corporate debt exposed to such downside risks has become a key concern. This paper assesses the magnitude of indebtedness of leveraged non-financial companies and identifies the share of debt related to the riskiest firms. A stress test analysis examines the sensitivity of corporate debt to potential macroeconomic and financial shocks. The results show a sharp deterioration in the credit quality of firms, particularly in the United States and Emerging Market Economies (EMEs). Under stressed conditions, all these countries, China included, would experience a sharp rise in the number of firms considered at risk or distressed due to deteriorating cash flows and the inability to make interest payments, thereby becoming more likely to default.

Suggested Citation

  • Caroline Roulet, 2020. "Corporate debt stress testing: A global analysis of non-financial corporations," OECD Working Papers on Finance, Insurance and Private Pensions 46, OECD Publishing.
    • Handle: RePEc:oec:dafaad:46-en
    DOI: 10.1787/788a0c77-en
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    Cited by:

    1. Davaasukh Damdinjav & Dulamzaya Batjargal & Ninjin Batmunkh, 2024. "Distress Prediction and Stress Testing of Nonfinancial Firms: Case of Mongolia," IHEID Working Papers 16-2024, Economics Section, The Graduate Institute of International Studies.

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