A massive debt wall is about to hit Corporate America, and equity values will be 'incinerated,' Chamath Palihapitiya says
- A massive debt wall is about to hit Corporate America, Chamath Palihapitiya tweeted.
- That's as hundreds of billions worth of debt issued during the pandemic is about to mature.
A massive debt wall is about to hit Corporate America, which will see equity values crash, according to "SPAC King" Chamath Palihapitiya.
In a Monday tweet, the Social Capital founder warned that hundreds of billions of dollars in debt that was issued during the pandemic when rates were near zero will start to come due in January of next year.
In fact, high-yield bond sales peaked in October 2021 at over $432 billion, according to Bloomberg. US junk bonds now hold the shortest average time to maturity on record as investors pursued quicker due dates out of fear of a coming recession, the report said.
"Prepare for a bunch of companies who will not be able to refinance their debt and will thus see their equity value incinerated," Palihapitiya wrote. "This will hit the private equity industry very acutely, whose core playbook involves wrapping their companies in gobs of high yield debt."
However, he added that some could take this as an opportunity to act as buyers of such firms, recapitalizing "the best of these companies."
"Expect a bunch of articles about potential corporate bankruptcies starting this fall…lots of money to be made if you're paying attention," Palihapitiya added.
This is not the first time he has outlined the effects of tighter monetary policy. In his annual letter, he blamed elevated interest rates as bringing down entire sectors, such as cryptocurrencies and special purpose acquisition companies.
In its most recent meeting, the Federal Reserve skipped another interest rate hike for this month, but indicated two more are possible this year.