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The Next Enron? The End of Cheap Debt

26 February 2018

DANIEL LACALLE — The end of the era of cheap money highlights the risk of “Enron-style” bankruptcies in many sectors, including renewable energy. With the path of three rate hikes in the United States in 2018 confirmed by the Federal Reserve and a nervous equity market, the challenges are more evident than ever.

The past eight years of massive liquidity and low rates have not helped deleverage, and many companies have used this period to increase imbalances and create complex debt structures. In fact:

  • Corporate net debt to EBITDA levels is at record highs. About 20% of US corporates face default if rates rise, according to the IMF.
  • The number of zombie companies has risen above pre-crisis levels according to the Bank of International Settlements (BIS).

This is particularly evident in the renewable sector where, even in the years of high liquidity and low rates, bankruptcies soared[…]

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