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FAQ: Global Corporate Issuers Face $8.9 Trillion In Rated Debt Maturities Through Year-End 2018
Standard & Poor's Global Fixed Income Research recently conducted a study to analyze corporate maturities over the next few years. It is important to understand corporate refinancing needs vis--vis the overall expectations in the global economy and the credit markets. The following are some of the questions we addressed. (Watch the related CreditMatters TV segment titled, "Europe Owns The Largest Chunk Of $9 Trillion In Global Refinancing," dated March 14, 2014.)
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FAQ: Global Corporate Issuers Face $8.9 Trillion In Rated Debt Maturities Through Year-End 2018
Table 1
Data as of Dec. 31, 2013. Includes bonds, loans, and revolving credit facilities. Estimates are likely biased on the high side because our tallies do not always take into account amortization schedules and loan paydowns. Additionally, revolving credit facilities are usually tallied at full value whether or not they are fully drawn. Foreign currencies are converted to U.S. dollars at the exchange rate on close of business on Dec. 31, 2013. Source: Standard & Poor's Global Fixed Income Research.
Our data only covers the debt from entities that Standard & Poor's Ratings Services rates. Additional debt is maturing outside of our rated population, particularly in regions where capital markets are less developed.
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FAQ: Global Corporate Issuers Face $8.9 Trillion In Rated Debt Maturities Through Year-End 2018
diversified than their higher-rated counterparts, and they borrow at higher costs and have fewer alternative funding sources.
Chart 1
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FAQ: Global Corporate Issuers Face $8.9 Trillion In Rated Debt Maturities Through Year-End 2018
Table 2
Data as of Dec. 31, 2013. Includes bonds, loans, and revolving credit facilities. Estimates are likely biased on the high side because our tallies do not always take into account amortization schedules and loan paydowns. Additionally, revolving credit facilities are usually tallied at full value whether or not they are fully drawn. Foreign currencies are converted to U.S. dollars at the exchange rate on close of business on Dec. 31, 2013. Source: Standard & Poor's Global Fixed Income Research.
Financial companies, including banks and insurance companies, account for $4.2 trillion of the $8.9 trillion total. Among financial issuers, those in the U.S. have the most debt coming due at $1.1 trillion. Financial companies from France, Spain, and the U.K. also have significant amounts of maturing debt (see chart 2). European banks are of particular interest, not only because the sector continues to face some headwinds that complicate their own capital raising efforts, but also because the European Central Bank's (ECB's) Asset Quality Review scheduled for later this year could hinder them from otherwise increasing loans to other companies.
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FAQ: Global Corporate Issuers Face $8.9 Trillion In Rated Debt Maturities Through Year-End 2018
Chart 2
How has the recent boom of refinancings altered risk in the credit markets?
Generally, the recent wave of refinancings and prefinancings have helped some companies push maturities out and lower debt service costs, given the relatively favorable terms on offer. This has helped some companies manage their risks amid the still elevated uncertainty throughout much of the world since the global financial crisis. However, many investors remain hesitant to commit to longer-term exposure. This is evident in the current pool of debt instruments in our database, where more than 80% of outstanding debt that were issued in vintage years 2012 and 2013, mature by 2020. Among speculative-grade debt, shorter duration instruments are even more prevalent, which is not surprising. The willingness of investors to provide funding has certainly helped keep defaults from being more frequent, but the shorter duration commitments shift the refinancing risk only a few years out.
What are some of the risks related to corporate refinancing in the near term?
A possible shift from accommodative to tighter monetary policy could blunt the flow of new corporate bond issuance, which was robust in 2012 and 2013. So far, it appears investors have been relatively comfortable with the measured pace of the decline in the U.S. Federal Reserve's asset purchases. However, we expect the Fed to eventually move away from asset purchases and start to raise the benchmark Fed funds rate sometime in 2015, and it is difficult to gauge how investors, domestically and globally, will react. In Europe, the weak recovery will likely keep interest rates low longer than in the U.S., but the fragile economies in the region might keep some investors at bay. Moreover, we
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FAQ: Global Corporate Issuers Face $8.9 Trillion In Rated Debt Maturities Through Year-End 2018
expect unemployment in the region to remain high, which may keep consumers from otherwise spending more freely, and therefore possibly limiting revenue upside for some companies. In the emerging markets, where a significant portion of maturing debt is in U.S. dollars and euros, the recent foreign exchange volatility is a real risk, not only as it relates to the burden it adds on current debt service, but also to the feasibility of meeting the higher costs associated with future capital raising efforts. This is less of a risk for export-oriented multinational firms with effective foreign exchange hedges in place and revenue streams in U.S. dollars and euros. However, for smaller, less diversified firms with less financial flexibility, who usually carry lower ratings, a local currency exchange rate devaluation may pose a significant threat in their ability to meet current and future financing needs. To the extent of the uncertainty that they breed, socio- and geopolitical risks are factors that could materially affect refinancing prospects. The current situation in Ukraine, for instance, is delicate, and investor concerns stemming from this development could impede financing and refinancing plans for some companies. As one would expect, entities at the lower end of the ratings spectrum, relative to higher-rated borrowers, typically bear the brunt when investor confidence begins to erode.
Related Research
U.S. Refinancing Study: $3.5 Trillion In Corporate Debt To Mature By Year-End 2018, Feb. 28, 2014 Default, Transition, and Recovery: The U.S. Corporate Default Rate Is Expected To Remain Subdued, Rising Modestly To 2.5% By December 2014, Feb. 26, 2014 Credit Trends: Global Corporate Bond Issuance Is Off To A Good Start In 2014 With $296 Billion Issued In January, Feb. 6, 2014
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