U.S. corporations curbed their hefty debt loads in the second quarter, according to S&P Global Ratings.
The rating agency reported that total debt for the companies it covers retreated to US$8.43 trillion from a record US$8.52 trillion in the first quarter.
“Corporate debt levels declined in the second quarter even as benchmark interest rates held steady from April through June. However, market watchers have increasingly heightened their expectations for the U.S. Federal Reserve to begin lowering rates by the end of this year,” the firm said in a research note.
The debt held by investment grade companies was down 0.9% in the quarter, yet debt levels increased in seven out of 10 non-financial sectors, S&P reported.
Companies in the energy sector led the way, with debt rising by 4.1% in the quarter. However, this was largely offset by a 12.7% drop in debt for tech sector companies.
For companies rated as speculative, debt declined in eight of 10 sectors, S&P said.
“Total debt only rose in the healthcare and energy sectors,” whereas debt levels in the consumer staples sector was down by 7.7%. S&P said corporate debt-to-cash flow ratios also declined.
For investment grade companies, the median debt-to-EBITDA ratio fell to 2.58 from 2.77 in the second quarter. And, the median ratio for speculative grade companies dropped to 3.57 from 4.01.
The materials sector led the decline among investment grade firms, while consumer staples drove the decline for lower-rated companies.