March 13, 2020 / 4:52 PM / 17 days ago

Cost of short-term debt rises for U.S. companies

NEW YORK (Reuters) - U.S. companies are paying more to borrow the short-term debt they use to meet immediate funding needs like payrolls and inventories.

The premium investors are demanding to hold riskier commercial paper, as the short-term debt is known, versus the safer equivalent, has risen to the highest since March 2009. The spread between the overnight AA-rated paper of nonfinancial companies versus riskier overnight P2 paper rose to 73 basis points on Thursday, according to Federal Reserve data US1DCP22= US1DCP=.

Borrowing costs have been rising across debt markets, especially for less financially stable companies, as investors have sold off riskier holdings on worries about the impact of the coronavirus on corporate earnings. The difference between the price of junk-bond yields versus safer Treasuries rose to its highest since March 2016 on Thursday, according to the ICE/BofA high-yield bond index .MERH0A0.

Rising borrowing costs have meant that fewer companies have issued new debt in the past three weeks, and are instead using alternative funding sources like drawing on existing low-interest bank loans.

Airplane maker Boeing Co (BA.N), hotel operator Hilton Worldwide Holdings Inc (HLT.N) and theme park company SeaWorld Entertainment Inc (SEAS.N) are among the companies that drew on or upsized their credit lines this week, all of which are in sectors directly affected by reduced tourism and discretionary spending due to the coronavirus.

Boeing was downgraded to P2 in the commercial paper market in December, meaning its cost to borrow overnight has increased by more than a third in the past week.

Although borrowing rates have increased, issuance has thus far remained steady in the commercial paper market.

Reporting by Kate Duguid; Editing by Richard Chang

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