Now credit analysis is part of stock analysis

In the coronavirus pandemic, stock analysts have a new job: credit analysis.

As the global economy grinds to a standstill amid mandatory shutdowns, the survival of many businesses is suddenly in doubt, especially those in vulnerable sectors such as airlines, hotels and restaurants. Instead of asking how fast a company can grow, ever-optimistic equity analysts now have to answer a grimmer question: how long can it last if its revenue vanishes? This focus on cold, hard cash means they have to do work that is more familiar to credit analysts: analyzing available liquidity, looking at debt covenants and repayment schedules and checking the extent to which assets are unencumbered.

While the current economic freeze is unprecedented, making it hard to prepare for, investors overlooked credit health in the bull market. They were focused on growth -- never mind whether companies were able to make money -- and often pie-in-the-sky projections of potential market size. Now that balance sheets have taken center stage, traditional metrics like net debt to earnings before interest, taxes, depreciation and amortization or even tangible book value are back in vogue.

Even for companies whose businesses aren't immediately at risk, refinancing existing debts could pose big problems. The junk-bond market has stalled in recent weeks, so investors need to understand what alternative financing channels are available to companies: credit lines from banks or assets that could be used to secure loans. Even for those that can still borrow, the surging costs will hurt their profits down the road. Average yield on dollar-denominated, junk-rated corporate bonds stands at 12%, up from below 6% just a month ago, according to data from S&P Dow Jones Indices.

With everyone in cash-preservation mode, companies that used to pay generous dividends are starting to cut back. Delta Air Lines, Marriott International, Macy's and Ford Motor have all suspended their payouts in recent days, and more will likely