Earlyventures

What is the biggest business secret hiding in plain sight right now? Well, we’ve been saying for a while on @theallinpod that we should prepare for interest rates “higher than we like and for longer than we want”. The most under reported issue in business is how Corporate America is about to hit a massive debt wall because of it. A “debt wall” is a term that describes how much debt is due at various times. If a lot of debt comes due at the same time, it puts a lot of pressure on a company. 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. 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. That 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. Expect a bunch of articles about potential corporate bankruptcies starting this fall…lots of money to be made if you’re paying attention.