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Published on: December 10, 2021 at
Canada's Corporate Debt Hangover Explained
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Canada's Corporate Debt Hangover Explained
Today, we will take a look at a major threat on Canada’s economic recovery, from the accumulation of corporate debt. The article starts off by a testimony from a corporate insolvency lawyer, who claims to be flooded with work, at levels comparable to the 2008 financial crisis. This isn’t surprising given the depth of the current crisis that hit our economy, with such high debt and weak levels of confidence. Apparently, the rate of businesses filings for creditor protection is currently sitting at nearly 2x from last year’s rate. But, what makes matters worse for many Canadian companies, is the record level of corporate debt they’re carrying. The problem when you mix debt with harsh economic times, is higher financial vulnerability. Because companies need to service their debt on a regular basis, and need the resources to do so. Considering corporate debt as the sum of all loans and debt securities, If we look at Canada’s Corporate debt on a global scale, Canada currently totals 2.7 trillion dollars in corporate debt. This is equivalent to 118 per cent of Canada’s entire GDP, up from a 85 per cent ratio in 2008. This 118% debt-to-GDP ratio is massive, as it represents the third highest among G20 countries, behind only China and France, and the 11th highest in the world. In comparison, in the US, the corporate debt represents 74 per cent of their entire GDP. And people always talk about how bad the debt crisis is in the US. In that respect, Canada surprisingly is in a much worse position. In the united states, analysts are expecting an upcoming bankruptcy wave among large companies this year. Notably, we’ve seen it with Hertz and Chesapeake. Some of Canada’s most prominent brands are in similar trouble. Montreal-based Cirque du Soleil filed for bankruptcy, carrying a whooping 900 million USD in debt. Next up, Air Canada had nearly almost 6 billion dollars of debt by the end of last year. Last month, it raised $1.6 billion by selling shares and convertible debt to strengthen its balance sheet, to continue operations. Another one to look at is Bombardier, which is another Montreal-based company operating in the transportation and aviation space. Bombardier has more than 9 billion US,D worth of corporate debt. Bombardier is in a poor financial position, will need government assistance to stay afloat. Other notable at risk sectors are manufacturing, travel, tourism, oil and gas, hospitality and commercial real estate. We can see how Canadian enterprises reacted at the beginning of this crisis. Between January and May 2020, corporate bond issuance jumped 22.5 per cent. Meanwhile, the debt-to-equity ratio of private non-financial corporations jumped to 212 per cent in Q1, which is the highest it’s ever been since 2009. Many canadian economists are sounding the alarm, and so is the Bank of Canada. After all, non-financial corporate debt was 315 per cent of income at the end of 2018. And, currently, Canadian corporate debt is “well above” historical levels. More on Part 2.... …………….. Source: https://www.thestar.com/business/2020/07/04/how-canadas-corporate-debt-bomb-is-undermining-the-recovery-from-covid-19.html ....................... 📸 Check me out on instagram! https://www.instagram.com/elblancofinance/ ................... This video is a summary and may not perfectly capture the essence or intention of the information source. We invite you to look at the original source of information for more details, and we urge you to make your own investment decisions. We are not critics of the original video. Our goal is to simply summarize and save you time. ...................... Disclaimer. The content in these videos shall not be construed as financial advice. It is your responsibility to verify all information yourself. This is a Youtube video for entertainment purposes ONLY. Do not make investment decisions based on our videos. No copyright infringement is intended. ............................ Let's get rich 🚀📈 Let's finagle this bagel 🥯
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