We have seen a convergence after years of cheap money, lots of liquidity, and companies pilling on debt loads that is now converging with a bankruptcy predictor called the “Z Score”. This is creating a blinking yellow light according to legendary bankruptcy expert Dr. Edward Altman.
As these two interlocked factors start to create warnings a third element is drifting into the not so distant future. An Article in the WSJ June 26, 2017, “The $1.5 Trillion Business Change Flying Under the Radar”. Congress is kicking around scrapping the interest deduction for businesses. This would increase the after tax cost of interest an additional 35% and may in fact put many highly leveraged deals in covenant default, to negative cash flows. The economic disruption would be gigantic.
With congress just thinking in those terms should send boards and executives thinking about alternative long term strategies.