Borrowing becomes less attractive when interest rates start rising from almost nothing. The Federal Reserve's interest-rate hike on Wednesday – only the second in a decade – foreshadows the end of a debt binge by U.S. corporations. Real growth rather than financial engineering will be the new game as lenders charge more.
Cheap debt has been a potent salve for companies struggling to get ahead in a slow-growth world. U.S. corporate bond issuance is on track to set a record for the fifth straight year, with $1.45 trillion in new bonds offered as of Nov. 30, according to the Securities Industry and Financial Markets Association. The money raised has financed a spate of merger activity, enabled companies to boost earnings per share with buybacks, and substituted cost-effectively for paying tax to repatriate profit earned overseas.