## Stress Testing U.S. Leveraged Corporates in a COVID-19 World

_IMF Working Papers, November 13, 2020_

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**Canonical URL:** [Stress Testing U.S. Leveraged Corporates in a COVID-19 World](https://www.imf.org/en/publications/wp/issues/2020/11/13/stress-testing-u-s-49777)

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## Bibliographic details
- Authors: Carlos Caceres, Diego A. Cerdeiro, Dan Pan, Suchanan Tambunlertchai
- Published: November 13, 2020
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513561134.001

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### Scope and methodology
- Sample: 755 firms.
- Aggregate indebtedness analyzed: US$6.2 trillion.
- Assessment based on projections of net income, availability and cost of funding, and debt servicing flows under different stress test scenarios.
- Focus on solvency risks and liquidity needs of the U.S. corporate sector.

### Key findings
- Leveraged corporates account for most of the potential losses arising from the macroeconomic stresses associated with the COVID-19 crisis.
- Loss concentration by sector:
  - Oil and gas.
  - Auto.
  - Capital and durable goods manufacturing.
- Potential losses from corporate debt write-downs appear to be a fraction of banks’ capital buffers.
- Given the size of the leveraged segment and the relatively long duration of that sector’s debt, near-term liquidity needs of these corporates appear modest.
- Corporate stresses could amplify the current economic downturn as firms cut investment spending and reduce employment, potentially giving rise to significant indirect losses for the financial system.

### Policy implications and risks
- Direct solvency losses on corporate debt are limited relative to banks’ capital buffers, reducing immediate banking-sector solvency concerns.
- Indirect channels—reduced investment and employment from stressed corporates—pose material risks to the broader economy and could generate significant secondary financial-sector losses.
- Monitoring leveraged corporates in the specified high-risk sectors is critical to containing amplification effects on the real economy and financial system.

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- **Working Paper**
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_Source: https://www.imf.org/en/publications/wp/issues/2020/11/13/stress-testing-u-s-49777_