Evolving Beyond Global Regulators

An update of our research on the efforts of developed countries to work out from under a massive overhang of debt shows how uneven progress has been. US households have made the greatest gains so far.

March 2015 | by Mr. John Olivier, Chief Investment Officer

The 2008 financial crisis and worldwide recession halted a three-decade expansion of global capital and banking markets. Today, growth has resumed, fueled by expansion in developing economies but also by a five trillion increase in sovereign debt. The specter of deleveraging has been haunting the global economy since the crunch. The fear: an unwinding of unsustainable burdens will drag down growth rates for years to come.

Light at the End of the Tunnel

Our debt finance practice is one of the most highly regarded in the world. We represent corporate issuers, investment banks and financial sponsors across a range of investment grade and high-yield bond, senior bank financings and other financings. We have a reputation for devising creative solutions while at the same time focusing on the key commercial and practical aspects of each deal.

We regularly advise companies on a wide range of investment grade, high-yield and bridge and other debt financings, including many offerings by first-time issuers and some of the most complex or novel transactions. For example, we recently advised British American Tobacco and Bacardi Limited on their debut bond offerings in the United States We also represented BAE Systems, Royal Dutch Shell and Unilever on their recent US bond offerings. Over the past five years, we have completed over three-hundred bond financings for issuers, generating total proceeds of over three-hundred billion.

How Policy Makers and Business Leaders Can Respond

Policy makers today face an acute challenge going forward. On the one hand, public policies that stimulate GDP growth will be invaluable for countries experiencing deleveraging, because such policies help an economy “grow into” its current level of debt rather than pay it off. Households and businesses can therefore save more without reducing consumption and investment as sharply as they would otherwise have to do. On the other hand, faced with rising public debt, policy makers must also carefully consider when to reduce government support of aggregate demand.

As of this writing, the deleveraging process has barely begun. Each week brings news of another country or company straining under the burden of too much debt. Deleveraging is likely to be a significant component of the post-crisis recovery, and this will dampen growth. Nevertheless, by learning lessons from past experiences of deleveraging, today’s policy makers and business leaders may be better placed to steer a course through these challenging waters.

 

Executive Editor

Ms Anna Sullivan

Ms Anna Sullivan