U.S. companies sink deeper in debt as economy drags

By John Parry

NEW YORK (Reuters) - Unbridled borrowing in the boom years has swelled Corporate America's debt burden to the highest levels on record, putting many cash-strapped companies at risk of going bust as economic malaise lingers.

Even if the longest recession in decades is now petering out, growth will be so feeble that companies can not rake in enough earnings to offset their debt mountain, leaving many dangerously exposed.

In the first quarter, the debt of U.S. industrial companies in aggregate exceeded 100 percent of their annual income for the first time, said Robert C. King, an economist at the Jerome Levy Forecasting Center in Mount Kisco, New York.

"This ratio has never been higher. There is an argument that it is in its most dire state," King said. As the downturn lingers, "earnings drop off a lot more quickly than you can deal with debt," he added.

The total debt of U.S. non-financial companies was $7.2 trillion (4.4 billion pounds) at the end of the first quarter, up from $4.3 trillion in 1999, according to Federal Reserve data.

And over the last four decades, "the amount of debt outstanding has exploded and corporate profits have grown but not to the same degree," said Leonard Santow, managing director of economic and financial consulting firm Griggs & Santow in New York.

"More leverage, at least up until this last crisis, became more acceptable," Santow added.

Now, as the economy struggles the widening gap of debt levels over earnings becomes especially perilous for companies and for the economy itself.