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The Potential Increase in Corporate Debt Interest Rate Payments from Changes in the Federal Funds Rate Accessible Data
Figure 1: Evolution of the Nonfinancial Corporate Interest Rate Coverage Ratio
The figure shows the historical evolution of this ratio since 2000 to 2016 and adds the annual projection of the ratio from 2017 to 2019 under two scenarios: no rate change and SEP rate change. Interest coverage ratios have increased on average during the period from around 2 in 2000 to 5 in 2016. Both the no rate change scenario and the SEP rate change forecast a gradual decline in coverage ratios over time. Under the no rate change scenario, the ratio declines to around 4.5. Under the SEP rate change scenario, the ratio declines to around 4.
Figure 2: Interest Coverage Ratios for Nonfinancial Corporate Sectors
The figure is a bar plot of interest coverage ratios for 12 different nonfinancial economic sectors. The values for these ratios are between 1 and 8 percent approximately, with the lowest values for real estate, utilities and mining, all of them below 2 percent; and the highest values for education and health, retail trade, and wholesale trade, all of them above 7 percent.
Figure 3: Evolution of Interest Rate Coverage Ratios for the Real Estate, Utilities, and Energy Sectors
The figure contains three charts with the historical evolution of the interest coverage ratios for real estate, utilities, and energy sectors, respectively, since 2000 to 2016, adding the annual projection of these ratios from 2017 to 2019 under two scenarios: no rate change and SEP rate change.
Interest coverage ratios for the real estate sector have been between 1 and 2, with its highest value in 2016 and the lowest one in 2009. Both the no rate change scenario and the SEP rate change forecast a gradual decline in coverage ratios over time. Under the no rate change scenario, the ratio declines to slightly below 2. Under the SEP rate change scenario, the ratio declines to around 1.5.
Interest coverage ratios for the utilities sector have been between 2 and 3, with its highest value in 2017 and the lowest one in 2000. Both the no rate change scenario and the SEP rate change forecast a gradual decline in coverage ratios over time. Under the no rate change scenario, the ratio remains roughly at the 2016 level (around 2.8). Under the SEP rate change scenario, the ratio declines to around 2.5.
Interest coverage ratios for the energy sector have been between -10 and 15, with its highest value in 2005 and the lowest one in 2015. Both the no rate change scenario and the SEP rate change forecast no significant change in coverage ratios over time, remaining around -3.