Why U.S. companies aren't as rich as you think

U.S. companies are sitting on a record $1.8 trillion in cash and investments. One problem. They also are on the hook for $6.6 trillion in debt.

Talk about being cash rich but debt poor. U.S. companies only hold 28 cents in cash for every dollar they must repay in debt, the lowest cash-to-debt ratio since the financial crisis wound down in 2009. It's even uglier situation if you exclude the 1% richest companies, The other 99% of the less fortunate companies only have 15 cents in cash for every $1 in debt they owe. That is "the lowest we've seen in the past decade, including the years preceding the Great Recession," according to the report co-authored by Andrew Chang and David Tesher of S&P Global.

Debt levels are exploding even as cash is growing at a slowing rate. Companies borrowed more than $850 billion last year taking their total debt to $6.6 trillion, according to a new report by S&P Global Ratings that looked at more than 2,000 U.S. non-financial companies. That's a staggering amount of money to repaid even, dwarfing the $1.8 trillion in cash and equivalents that companies hold.

The disconnect between cash and debt could mean companies could face rising defaults, a paradox even as the amount of corporate cash hits never-before-seen heights, says the S&P Global report. "We believe corporate default rates could increase over the next few years," according to the report.

Increasingly, the corporate landscape is becoming much more of a situation of the haves versus the have nots, S&P Global says. Much of the cash is being held by an increasingly small cadre of mostly tech companies. Separately, Moody's said that 5 U.S. tech companies, Apple (AAPL), Microsoft (MSFT), Alphabet (GOOGL), Cisco Systems (CSCO) and Oracle (ORCL), hold a third of corporate cash and investments.  The 25 most cash-rich companies with the highest credit ratings, called investment-grade issuers, are so flush they're masking an erosion elsewhere, S&P Global Ratings says.

Meanwhile, companies with less cash are adding up debt and seeing their cash positions erode. Companies with the lowest credit ratings, called speculative-grade issuers, now only have 12 cents in cash for every $1 in debt. That's down from 21 of cash for every dollar in debt they had in 2010 and even below the 15 cents in cash for every dollar in debt in 2008 during the Great Recession. These speculative-grade companies saw their cash actually sink 4% in 2015.

The pace of borrowing is staggering and outpacing cash by a mile. Over the past five years, debt outstanding jumped 50 times faster than cash did, S&P Global says. "But credit risks are rising as the corporate credit cycle ages," the report says.

Investors don't seem too worried yet. The 10 companies in the Standard & Poor's 500 with the lowest ratios of cash and investments to total debt, including energy firms Range Resources (RRC) and Chesapeake Energy (CHK) and utility Ameren (AEE), are up an average of 9.6% this year, according to a Paste BN analysis of data from S&P Global Market Intelligence separately from this report. That beats the S&P 500's 1.6% gain this year. Investors understand heavy debt loads aren't necessarily a problem as long as the companies have the cash flow to service the interest payments and debt markets are open to refinancing in the future.

Investors, though, should be aware conditions for debt might not remain as hospitable as they are now, says S&P Global, not mentioning any individual companies. "Given the capital market dislocation that transpired in 2008-2009 and the volatility in early 2016, investors are getting jittery," the report says.