Buybacks will fade. Balance sheets will be back. A record wall of maturing debt will turn corporate strategy on its head – with ripple effects for earnings, credit markets, and equity returns. You won’t hear this on earnings calls – at least, not yet. But something big is happening in boardrooms across America.
For over a decade, corporate CFOs followed a simple playbook: borrow cheap, buy back stock, juice EPS, repeat. It worked beautifully – until now. Suddenly, $1.8 trillion in corporate debt is maturing in 2025 and 2026. And it’s not coming due at the cozy 2% rates of 2020. It’s coming due in a world of 5%–8% refinancing costs.
The result? Quietly, companies are flipping the script. Instead of engineering stock price pops, they’re shifting capital to something far more boring, but far more critical – survival. When things get hard, bubbles pop, but companies with hard cash flow and strong balance sheets thrive. We absolutely take this into account in our High Quality portfolio, which has outperformed the S&P 500 and achieved returns greater than 91% since inception.
The Debt Wall Is Real – And It’s Towering
Let’s talk numbers.
According to S&P Global, between 2024 and 2026, U.S. companies face a $2.3 trillion maturity wall, with $1.8 trillion coming in 2025 and 2026.
And here’s the kicker: much of this debt was issued in the zero-rate era, when refinancing was practically free. Now?
- Investment-grade yields: About 5%
- High-yield (junk) yields: > 8%
That means companies are facing 2–3x the borrowing cost just to keep existing debt rolling.
Buybacks Are Going To Be The First Casualty
Here’s where it gets interesting: this isn’t just a debt story. It’s a capital allocation shift.
Companies that once plowed excess cash into stock buybacks are going to hit the brakes, or at least, slow down. If S&P 500 Buyback Index is any indicator – the market is already expecting this to happen. The index tracks performance of top 100 stocks with highest buyback ratio – and has fallen nearly 12% from its peak – with most of the fall coming in 2025. So where will this cash for buybacks go?
- Paying down or refinancing debt at higher rates
- Preserving credit ratings to avoid junk territory
- Fortifying balance sheets ahead of economic uncertainty
The “buyback bid” – a key pillar of U.S. stock performance in the last decade – will weaken. Fewer buybacks mean less support for stock prices.
Some Companies Are More Vulnerable
This isn’t going to hit all companies equally. Some are staring down a financing cliff with no safety net.
- Speculative grade debt industries – Industries with 40%-60% of debt classified as speculative grade – including chemicals, packaging, forest products, building materials, metals and mining, media and entertainment.
- Small Caps – Tend to have larger debt relative to profits compared to mid and large caps – will now face more interest repayment pressure.
- Real Estate (REITs) – Already squeezed by rate hikes and falling valuations.
- Utilities & Telecom – Capital-intensive with limited pricing power.
Why This Cycle Is Different – And Perhaps More Dangerous
In the past cycles, the Fed could slash rates to save struggling borrowers. But inflation hasn’t gone quietly. The Fed’s effective federal funds rate is currently at 4.33% with the target range of 4.25% – 4.5%.
The Fed now faces a difficult choice: ease rates and risk inflation, or stay tight and let the corporate debt bomb go off.
That’s what makes this refinancing wave different. There’s no painless policy escape hatch.
So What? The Big Picture Takeaways
- Earnings Could Get Hit → Even if revenue holds up, higher interest expense will impact margins.
- The Buyback Era May Be Over → Expect fewer repurchases, weaker EPS growth, and less support for valuations.
- Zombie Companies May Finally Die → The death of cheap money may force out firms that should’ve failed years ago – and in the long run, that might be a good thing.
This is more than just a debt story. It’s a shift in how Corporate America operates, invests, and survives. If you’re still pricing markets like it’s 2021, it might be time to turn the page. Adjusting to shifting market regimes is part of the Trefis High Quality (HQ) Portfolio which, with a collection of 30 stocks, has a track record of comfortably outperforming the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.