Junk-Rated Companies Go Looking for Loans

There are times in life—for both regular people and businesses—when a little extra cash comes in handy. Sometimes it’s to cover day-to-day bills. Other times it’s to stage an expansion. But overusing credit can be a sign of great weakness to come, and new reports suggest there may be a lot more of that to come as junk-rated companies are increasingly looking to land a loan.

Some of the loan pursuits come from companies like American Airlines (NASDAQ:AAL) or Caesars Entertainment (NASDAQ:CZR). In fact, companies like these—called “speculative grade” companies—issued about as many bonds in the last two months as they did in the last six months of 2022. With inflation on the rise everywhere, though, cash doesn’t go as far as it once did. That’s led to a lot more businesses actively seeking out loans to help bridge the gap between the cash they need today and the cash they’ll have tomorrow.

In fact, numbers are rising all over. Dish Network (NASDAQ:DISH) issued $2 billion worth of bonds with a yield at issuance of 12.25%. Citrix Systems (NASDAQ:CTXS) issued $4 billion worth with a yield at issuance of 10%. And the numbers go on and on from there. What prompted all this debt-seeking? Some say it’s a matter of sheer need, as businesses fight the same inflation that most regular people fight at the grocery store. However, others point to a recent decline in borrowing costs, and companies are simply trying to get out ahead of a new surge from the Federal Reserve.

Taking a look at some of the borrowers shows us that businesses in a wide range of industries are seeking loans. Caesars Entertainment is considered a Strong Buy under analyst consensus, while Dish Network is called a Hold. However, Caesars stock offers a 35.21% upside potential thanks to its average price target of $71.64 per share. Meanwhile, Dish Network offers a hefty 68.62% upside potential thanks to its average price target of $18.38 per share.

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