The SVB collapse is going to make it a lot more expensive for companies with bad credit to raise capital.
The spread on junk-rated bonds relative to US Treasuries has surged to the widest level since December 30.
SVB's fall also eliminates a key source of funding for start-ups that would typically be denied by traditional banks.
The dust has yet to settle from the sudden collapse of Silicon Valley Bank, but one thing is for sure: the chaotic event has made it a lot more expensive for companies with bad credit to raise capital.
Since the FDIC took over SVB Financial on Friday, credit spreads on junk-rated bonds relative to US Treasuries have widened by 64 basis points to their highest level since December 30, soaring above 1,100 basis points.
That means junk-rated companies that seek to raise funds by selling bonds in the coming weeks will have to pay more to borrow, as investors seek higher compensation for the risk they're taking on in the wake of the biggest banking crisis since 2008.
But it's not just junk-rated companies that will face higher fund-raising costs. Credit spreads for investment grade companies have also risen in recent days as investors reprice risk across the spectrum of corporate credit quality.
The spillover effect of higher fundraising costs is also set to impact countless small startups that relied on Silicon Valley Bank to offer loans and extend lines of credit to companies that lacked profits, and sometimes even revenue.
The knock-on effect means tech mergers could soar 20% this year due to "a much tighter financing environment post SVB," Wedbush analyst