Shifts in Credit-Land: Repatriation Hurts Small Corporate Borrowers
A recent Bloomberg article informs us that US companies with large cash hoards (such as AAPL and ORCL) were sizable players in corporate debt markets, supplying plenty of funds to borrowers in need of US dollars. Ever since US tax cuts have prompted repatriation flows, a "$300 billion-per-year hole" has been left in the market, as Bloomberg puts it. The chart below depicts the situation as of the end of August (not much has changed since then).
Short term (1-3 year) yields have risen strongly as a handful of cash-rich tech companies have begun to repatriate funds to the US.
Now these borrowers find it harder to get hold of funding. This in turn is putting additional pressure on their borrowing costs. At the same time, the cash-rich companies no longer need to fund share buybacks and dividends by issuing bonds themselves.
The upshot is that the financially strongest companies no longer issue new short term debt, while smaller and financially weaker companies are scrambling for funding and are faced with soaring interest rate expenses – which makes them even weaker.