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High interest rates are increasingly eating into corporate profits.

S&P Global Market Intelligence reports debt service costs consumed a larger share of U.S. corporate profits in the first quarter.

For the median investment grade company, the interest coverage ratio — the ratio of pre-tax income to interest payments — declined to 5.78 in the first quarter of 2024 from 6.08 in the fourth quarter of 2023, S&P said.

For lower-rated issuers, the ratio declined to 2.62 in the first quarter of 2024 from 2.89 in the fourth quarter of 2023.

This marked four straight quarters of declining interest coverage for sub-investment grade companies, and the second consecutive quarterly decline for investment grade firms, S&P noted.

“Businesses are grappling with higher borrowing costs as the U.S. Federal Reserve holds the federal funds rate at its recent peak,” the firm said.

For investment grade companies, interest coverage dropped in the IT, energy, consumer staples and real estate sectors, S&P said. The ratio declined in eight of 10 corporate sectors among non-investment grade companies.