What is different now – as rates are finally rising – is that as this debt comes due, it is unlikely that companies will be able to roll to lower rates than they are currently paying. A second source of upward pressure on average interest expense is the recent surge in leverage loan issuance, i.e., those companies with floating rate debt (just 9% in aggregate for large caps, but a much larger percent for small-caps). The Fed Funds Futures curve currently implies four more rate hikes (~100 bp) through year-end 2019 (our economists are looking for 2 more than that, for a total of six through year-end 2019). While it is possible that some companies have hedges in place, there is still a substantial amount of outstanding bank loans directly tied to LIBOR which will result in a far faster “flow through” of interest expense catching up to the income statement.
https://www.zerohedge.com/news/2018-09-23/goldman-warns-default-wave-13-trillion-debt-set-mature
