The hidden risk to the economy in corporate balance sheets

Much of the cash is held by just a precious few companies, while debt is ballooning at other, weaker businesses as investors desperate for income rush to lend to them.

Of the $1.8 trillion in cash that’s sitting in U.S. corporate accounts, half of it belongs to just 25 of the 2,000 companies tracked by S&P Global Ratings.

Even among companies considered high-quality, or investment grade, credit rating agencies say a record number are so stretched financially that they’re one bad quarter or so from being downgraded to “junk” status.

In March, S&P cut its ratings on Macy’s to triple-B, two notches above junk, as competition from Internet retailers continues to dig into the department store chain’s sales.

Companies often buy their shares and take them off the market to goose their earnings per share, a widely watched measure of success.

Oil company Hess also saw its rating downgraded recently, mostly because of a plunge in oil prices beyond its control.

Hess is what ratings agencies call a “fallen angel” — a formerly highly rated corporate borrower that was cut to junk and thus made too risky for many bond funds.

Joseph LaVorgna, chief economist at Deutsche Bank, is worried about the risk posed beyond investment portfolios.

To be sure, few experts are so worried that they expect corporate debt to be the source of the next financial crisis.

Defaults are jumping, but they’re mostly confined to energy companies hit hard by a collapse in oil prices.

Companies in the Standard & Poor’s 500 index are generating enough operating earnings to pay the annual interest due on all their debt six times over, according to Goldman Sachs.

Chris Gootkind, director of credit research at fund company Loomis Sayles, says debt at many companies is still at a reasonable level, and thinks investors in corporate debt have gotten things largely right.

Corporate bond mutual funds have returned an average of 9.5 percent this year, more than an S&P 500 index fund.

Like folks who kept refinancing their mortgages instead of paying them off, companies have “rolled over” their old loans by taking out new ones.

The largest owner of radio stations in the U.S., iHeartMedia, has paid off parts of its $21 billion debt several times since the financial crisis, but elected to do so with money raised from new loans.