## Figure 1.9. Corporate Leverage and the Credit Cycle

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**Canonical URL:** [Figure 1.9. Corporate Leverage and the Credit Cycle](https://www.imf.org/-/media/files/publications/gfsr/2017/april/chapter-1/figure1-9.pdf)

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### 1. Asset Valuations, Balance Sheet Fundamentals, and Credit Conditions (Unweighted average in percentile rank, normalized to zero)
- "Above zero represents an improvement in credit fundamentals (for example, high valuations, supportive credit conditions, rising profits, ample liquidity)."
- "Below zero represents a deterioration (for example, excessive risk taking, reduced access to credit, high leverage, diminishing profits, falling valuations) in fundamentals, credit conditions, and valuation."
- Panel definition: "Valuation = distress ratio, deviation in high-yield bond spreads from fair value. Fundamentals = capital expenditures, interest coverage, leverage, liquidity, profit margins. Credit conditions = bank credit, lending conditions, net bond issuance."
- Time coverage notes: "2016 estimates refer to the first three quarters of the year, wherever full-year estimates are not available."
- Shaded areas indicate economic recessions.

### 2. Stages of a Stylized Credit Cycle
- Summary statement: "... signal a late stage of expansion in the credit cycle."
- Stages and characteristics (verbatim):
  - "July 2004–August 2007
    • Excessive risk taking
    • Rapid credit growth 
    • Rising profits, rising leverage, large-scale M&A and capex
    •  Credit overvaluation"
  - "August 2007–March 2009 
    • Falling credit growth
    • Falling profits, rising leverage, weakened cash flow 
    •  Credit undervaluation"
  - "March 2009–December 2009 
    •  Companies try to shore up balance sheets 
    • Weak credit growth 
         • Falling profits and leverage 
         • Credit undervaluation"
  - "December  2009–August 2010 
    • Improving momentum
    •  Accelerating credit
    • Rising profits, falling leverage
    • Valuations close to fair value and rising"

- Cycle phase labels present in figure: "Downturn", "Repair", "Recovery", "Expansion".
- Associated late-cycle signals listed in the figure: 
  - "Increased leverage, declining ICRs"
  - "Increased risk taking"
  - "Restrictive credit conditions"
  - "Overvaluation"

### 3. Net Leverage of S&P 500 Companies (Ratio of net debt to EBITDA)
- Key finding: "Median corporate leverage among big firms has grown steadily and is close to a historical peak."
- Axis/time references visible in figure: "Jan. 2000", "Oct. 01", "Jul. 03", "Apr. 05", "Jan. 07", "Oct. 08", "Jul. 10", "Apr. 12", "Jan. 14", "Oct. 15".
- Legend items shown: "2004–06", "2016", "Median (all firms)", "Mean (all firms)", "Median (excluding energy)".
- Recessions are indicated by shaded areas on the timeline.

### 4. Net Leverage by Sector (Ratio of net debt to EBITDA)
- Aggregate sector finding: "Eight out of ten sectors witness an increase in leverage across a broad set of firms."
- Sectors listed in the figure (order as presented): "Overall", "Energy", "Real estate", "Utilities", "Consumer discretionary", "Consumer staples", "Industrials", "Materials", "Telecommunications", "Information technology".

*Sources: Bloomberg L.P.; National Bureau of Economic Research; S&P Capital IQ; Thomson Reuters Datastream; and IMF staff estimates.*

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_Source: https://www.imf.org/-/media/files/publications/gfsr/2017/april/chapter-1/figure1-9.pdf_