Chamath Palihapitiya Sounds The Alarm — Corporate America Running Into Massive Debt Wall

Billionaire venture capitalist Chamath Palihapitiya has expressed concerns about corporate America's massive debt wall problem saying refinancing will be an issue for many companies that took out loads of short-term debt in the low-interest rate regime during the pandemic.

Palihapitiya believes interest rates are going to stay higher for longer and the most underreported issue in business is how corporate America is about to hit a massive debt wall because of it. This bears importance given the fact that Federal Reserve Chair Jerome Powell noted inflation has not really moved down and has not reacted much to the existing rate hikes.

"It turns out that companies issued a ton of short term debt during the pandemic at close to 0% interest rates. As you can see below, hundreds of billions of dollars will come due starting Jan-2024 and will need to be refinanced at MUCH higher rates," Palihapitiya said in his tweet. If a lot of debt comes due at the same time, it puts a lot of pressure on a company, he said.

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Indeed, it is true that most firms that took out short-term debt in the low-interest rate regime during the pandemic, could not have anticipated the Fed's delayed yet aggressive rate hiking cycle to tackle the decades-high inflation. However, if these firms are forced to refinance their debt at higher interest rates, they will see their financing costs rise significantly. It could then become a matter of survival for many of these companies.

Opportunities: "Prepare for a bunch of companies who will not be able to refinance their debt and will thus see their equity value incinerated. This will hit the private equity industry very acutely, whose core playbook involves wrapping their companies in gobs of high yield debt," Palihapitiya said.

This will also ultimately create opportunities for those with capital on the sidelines to act as a buyer and recap the best of these companies, he argued.

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