(Finance) – Le European companies they will have to cover further interest payments for approximately 8 billion euros in 2024 refinancing of maturing debt on the capital market, after paying a similar amount in bond refinancing this year due to rising rates. Scope Ratings states this in a new report on the topic.
“Assuming a similar outcome for the outstanding bank debt of European corporate borrowers, the additional annual interest paid in 2024 will grow to more than €40 billion as European businesses are still much more dependent on bank financing than from debt financing on the capital market”, comments Sebastian Zank, deputy head of corporate ratings at Scope.
The cost of additional interest resulting from sustainably higher borrowing rates will increase again in 2025 and 2026 as even more corporate debt will need to be refinanced. Inflation is unlikely to have fallen enough towards central banks’ targets to provide relief from looser monetary policy and lower rates before 2025, the ratings agency said.
“Rising interest costs will test the resilience of corporate borrowers, from maintaining credit ratings to avoiding default – adds Zank – Particularly under pressure they are the companies that had a interest coverage equal to or less than 3 times when interest rates were extremely low and those who have limited access to (re)financing.”