Euro zone corporate vulnerability at levels seen in debt crisis: ECB

Euro zone firms are increasingly vulnerable amid a pandemic-induced recession but public support, including cheap cash from the European Central Bank, have limited the damage so far, a new ECB report showed on Monday.

“Corporate vulnerabilities have increased to levels last observed at the peak of the euro area sovereign debt crisis, but remain below levels reached in the aftermath of the global financial crisis,” the ECB said a stability report article.

Having bought over 20 billion euros worth of corporate debt this year in an emergency bond purchase scheme, the ECB has been a cornerstone in providing funding to companies.

But the new downturn could lead to rating downgrades, which could make it harder for the ECB to chip in as it can only buy investment-grade corporate debt.

The unresolved issues for companies are falling sales, lower actual and expected profitability, and an increase in leverage and indebtedness, the ECB added.

“Government loan guarantees and bankruptcy moratoria have prevented a large-scale wave of … defaults, but a sizeable number of firms could be forced to file for bankruptcy if these measures are lifted too early or bank lending conditions tighten,” the ECB said.