Nobody defaults on cheap debt. They default on cheap debt at maturity.

Nobody defaults on cheap debt. They default on cheap debt at maturity.

The most expensive capital on a balance sheet is almost always the one that looked cheapest the day it was signed.

For a decade, debt was practically free, and an entire generation of balance sheets was built on that assumption. Money now has a price again — and every maturity date has become a test that many capital structures were never designed to pass. The business is often the same. The EBITDA is often the same. What changed is the cost of carrying the same debt.

Three principles that the cheap-money years allowed too many boards to forget :

1. Debt is a fixed promise against an uncertain future. Equity absorbs a bad year; debt does not care. Interest, amortisation and covenants fall due whether the market cooperates or not. Leverage does not create value — it amplifies whatever the business produces, in both directions. A capital structure that only works in the good scenario is not a structure. It is a bet.

2. The real cost of debt is not the interest rate. It is the refinancing risk. A loan signed at near-zero does not stay cheap; it stays cheap until maturity. Refinanced at today's conditions, the same nominal debt consumes a multiple of the cash flow it used to — which means the same company, with the same performance, can carry structurally less debt than it did five years ago. The gap between the two is precisely where balance-sheet distress is born.

3. Equity is not the expensive option. It is the buffer. Ex ante, equity always looks costlier than debt — that is what the textbooks say and what the term sheets show. But the ranking inverts under stress: the "cheap" capital is the one that forces the company to the table at the worst possible moment, while the "expensive" capital is the one that buys time, flexibility and negotiating position. The right question is never "what does this capital cost this year ?" but "what does it cost me in the year everything goes wrong ?"

The strategic lesson is uncomfortable but simple. Most companies that end up in restructuring are not operational failures. They are viable businesses carried by capital structures built for a world that no longer exists. The balance sheet should be designed for the bad year, not the good one — and the time to redesign it is before the maturity wall, not at it. By the refinancing date, the options have already been decided.

Capital structure is not an accounting outcome. It is a strategic decision — arguably the one a board revisits least and should revisit most.