US companies are barreling towards a $1.8 trillion wall of maturing corporate debt

• There's $1.8 trillion of corporate debt maturing over the next two years, Goldman Sachs estimated.
• Firms could be slammed with higher debt servicing costs as interest rates stay elevated.

US firms are barreling towards a giant wall of corporate debt that's about to mature over the next few years, Goldman Sachs strategists said in a note on Monday.

The investment bank estimated that $790 billion of corporate debt was set to mature in 2024, followed by $1.07 trillion of debt maturing in 2025. That amounts to $1.8 trillion of debt reaching maturity within the next two years, in addition to another $230 billion that will reach maturity by the end of this year, Goldman strategists said.

The wave of debt that will need to be refinanced could spell trouble for companies, as interest rates have been raised aggressively by the Fed over the last year. The Fed funds rate is now targeted between 5.25%-5.5%, the highest range since 2001.

The average interest rate on corporate debt will likely rise to 4.3% in 2024 and 4.5% in 2025, the bank estimated, up from the current rate of 4.3%.

Those rate increases are also likely to eat up a greater portion of company revenue, which could end up weighing on the economy. For every extra dollar spent to service their debt, firms will likely pull back on capital expenditures spending by 10 cents and labor spending by 20 cents, the strategists estimated, a reduction that could weigh down the job market by 5,000 payrolls a month in 2024 and 10,000 payrolls a month in 2025.

Experts have warned of trouble for US corporations as credit conditions tighten. Already, the tally of corporate debt defaults in 2023 has surpassed the total number of defaults recorded last year. As much of $1 trillion in corporate debt could be at risk for default if the US faces a full-blown recession, Bank of America warned, though strategists at the bank no longer see a downturn as likely in 2023.