The amount of US corporate debt that matures through 2024 has grown to around US$5.2trn, according to a new report from S&P Global Ratings, which says lower interest rates should make refinancing the debt pile manageable despite an expected slump in economic conditions.
Over the past year the volume of US corporate debt falling due through 2024 has grown by 2% despite the efforts of companies to refinance and term out their maturity profiles, S&P said.
The US$5.2trn figure includes bonds, loans and revolving credit facilities from financial and non-financial companies in the US and its tax havens Bermuda and the Cayman Islands. It represents 45% of global rated debt expected to mature during the period.
Two-thirds of the US corporate debt falling due through 2024 is investment grade and most of the speculative grade debt only falls due after 2022, according to the report, which should ease some of the refinancing execution risk.
And despite market volatility, recent issuance of bonds and loans has been more than sufficient to meet upcoming maturity demands, the report said.
“We expect maturities to be largely manageable,” Sudeep Kesh, head of credit market research at S&P Global Ratings told IFR.
“The recent Fed rate cut, and expectations of another rate cut in September will support a benign financing environment in the near term.”
That is despite the expectations of worsening economic conditions that rate cuts imply, and the volatility that has recently struck credit markets.
“There is a constant push and pull between central banks lowering rates, and deteriorating economic conditions. We don’t see that going away soon,” said Kesh.
“Spreads are still quite a bit tighter than they were earlier in the year,” he said. “Recent weakness is not that pronounced other than at the very low end of the credit spectrum, which tends to always have some pressure.”
DOWNGRADES STILL IN FOCUS
While companies have been able to push out near term maturities with new debt at cheap rates, taking some of the pressure off near term refinancing needs, investors remain wary of companies loading up their balance sheets.
The median debt-to-Ebitda for Triple B and Double B rated public companies is at its highest levels since 2006, according to another report from S&P on July 30.
Triple B debt remains the biggest portion of outstanding US corporate debt, accounting for around US$4trn of the US$9.7trn total according to S&P.
Though fears of a boom in “fallen angels” in the BBB market have eased somewhat over the past year, investors remain focused on leverage and potential downgrades as well as the maturity wall.
This particularly the case for insurance company investors given the big increase in the capital they must hold if a holding moves from BBB to BB.
“The biggest concern for insurance companies is less a maturity wall and more downgrade risk,” said John Simone, head of insurance solutions group at Voya Investment Management.
“Companies are reacting to that by paying down debt and improving balance sheets. We think the BBB issue is a little over done, but we continue to monitor that.”
And with lower expectations of economic growth, many companies have taken advantage of cheap funding conditions to borrow for financial engineering purposes instead of in growing the business, a trend that may not help in the long run.
“A lot of corporations have issued a lot of debt to buy back stock, instead of investing in new plants and growth, for example,” said Simone.