As we continue with one of the longest running bull markets, attention should increasingly be focused on the capital structures that have developed in what is now a rising rate environment. Spotlight on the Russell 2000 in a recent issue of Grant’s Interest Rate Observer:
“…404 Russell companies out of the not-quite 2,000 (the exact index population is 1,981) are deficient in EBIT coverage; their combined market cap comes to $412 billion.”
The article continues highlighting that 46% of the 404 companies have issued floating-rate debt. Cheap financing keeps poor performers alive, but an era of refinancing at lower rates may be drawing to a close.