Outlook for Credit

Apollo Chief Economist

Since the Fed started raising rates, credit fundamentals have continued to deteriorate. The higher cost of capital is putting significant downward pressure on interest coverage ratios across IG, HY, and loans. Cash flow coverage is declining, and leverage is rising, see charts below.

The pressure on corporate balance sheets is the direct result of the Fed keeping the costs of capital at high levels, and with rates staying high for a couple of years, the ongoing deterioration in credit fundamentals will continue to have a negative impact on employment growth and capex spending, and ultimately GDP.

Our credit market outlook is available here.

IG ICR coming down quickly
Source: Bloomberg, Apollo Chief Economist
HY ICR coming down quickly
Source: Bloomberg, Apollo Chief Economist
Credit metrics for leveraged loan deals: ICR and cash flow down. Leverage up.
Source: Pitchbook LCD, Apollo Chief Economist

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