Goldman Sachs predicts that US and European companies will make it through this winter's wave of local lockdowns and other restrictions without struggling to pay bills or service debt.
The investment bank said that the biggest corporate borrowers on both sides of the Atlantic raised enough money over the spring and summer to pay for several years of debt repayments.
The Federal Reserve effectively underwrote the corporate bond market when it committed to buy billions of dollars of the securities back in March. The Fed's intervention stopped borrowing costs from soaring out of control, which had begun to happen at the start of the coronavirus crisis.
"We view another round of widespread pressure on corporate liquidity – similar to the episode in March of this year – as unlikely, given the large magnitude of pre-funding and liquidity raising that has been accomplished over the past several months," Goldman's Amanda Lynam wrote in a note.
US companies had almost doubled the amount of cash that they hold as a proportion of their assets by the end of the second quarter, Lynam wrote in the note dated 14 October. European companies also increased their cash holdings as a proportion of their assets, but by a smaller amount.
"Because gross debt issuance remained elevated throughout the third quarter of 2020 as well, we expect this metric to show further improvement once data from the now underway third quarter 2020 earnings season are available," the global credit strategist wrote.
Companies raised so much money while the bond market has been calm that Goldman Sachs now forecasts a 30% decline in US investment-grade bond issuance in 2021. The bank expects US high-yield issuance to drop by almost 20%.
The resurgence of Covid-19 in the US and Europe this autumn has led to fears that new restrictions and local lockdowns would lead to more businesses closing with negative consequences for corporate bonds.