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Coronavirus Exposes the Danger of Corporate America’s Debt Binge

A slowdown in consumer and business spending could send heavily leveraged companies into default.

Federal Reserve Chairman Jerome Powell on Feb. 12.

Federal Reserve Chairman Jerome Powell on Feb. 12.

Source: Federal Reserve

The coronavirus is threatening to expose the Achilles heel of the U.S. economy: heavily leveraged companies. As the economic expansion stretched into a record 11th year, and interest rates stayed at ultralow levels, business debt ballooned and now exceeds that of households for the first time since 1991.

What’s more, the borrowing has increasingly been concentrated in riskier companies with fewer financial resources to ride out virus-driven difficulties. A wave of defaults would intensify the economic impact of the contagion. “It will add to recessionary pressures in the U.S.,” says Nariman Behravesh, chief economist at consultant IHS Markit Ltd.