US companies need to refinance $794bln by '09
-S&P 5:31 PM ET 10/14/08 | Reuters
NEW YORK, Oct 14 (Reuters) - U.S. companies may need to refinance $794 billion in debt that is coming due over the next year and a quarter at a record high cost, and for some companies this may trigger their default, Standard & Poor's said on Tuesday.
"In normal times, this would be business as usual, but the credit freeze has made it difficult for firms, especially in the speculative-grade space, to tap markets," S&P analyst Diane Vazza said in a report.
"Firms that can access the bond or loan market are not going to like what they see, as bond and loan spreads in the secondary market are at all-time highs," she said.
S&P's estimate includes financial and non-financial companies and is based on bonds, notes and bank debt coming due over the next five quarters.
Companies will need to pay more to refinance mid- and long-term debt, and until markets recover any refinancing need could push riskier firms into default, S&P said.
"With banks under pressure and investors shunning risk, it will be very challenging for weaker speculative-grade credits to get capital," S&P said.
Debt maturities for companies rated "B-minus," six steps below investment grade, and lower are light, however, which is fortunate as "heavy refunding needs in this climate could trigger numerous defaults," the rating agency said.
S&P anticipates around $56 billion in debt from speculative grade borrowers, which are rated below investment grade, will come due in the fourth quarter of 2008, followed by $29 billion, $39 billion, $28 billion and $82 billion due in the first through fourth quarters of 2009, respectively.
Also, "we expect firms will tap any prearranged credit lines or turn to private capital until conditions improve," the agency said.
Higher-rated junk companies may be able to refinance their debt, though it will come at a high price. For example, average companies rated "BB," the first tier below investment grade, would pay around 10 percent for five-year debt today, compared with 8 percent at the end of August and 7.5 percent at the end of 2007, S&P said.
Companies struggling under their current debt load are likely to seek relief in their debt covenants as a weak economy pressures their cash flows.
Defaults, meanwhile, may accelerate in late 2010, as defaults have historically peaked one or two quarters after the end of a recession.
High yield debt maturities then accelerate from 2011 to 2013.
INVESTMENT GRADE
Around $110 billion in investment grade debt is also expected to mature in the fourth quarter of 2008, with an additional $450 billion maturing in 2009, S&P said.
Financial companies have $40 billion, $51 billion, $62 billion, $37 billion and $33 billion due over the next five quarters, respectively, while non-financial companies have $70 billion, $54 billion, $65 billion, $66 billion and $81 billion.
Companies are likely to be able to continue to access the debt markets, though the cost of debt will be much higher.
Short-term financing for non-financial companies will be more of a concern, as the cost of commercial paper has risen dramatically, and companies with short term ratings under "A-2," the third highest rating, will have diminished access to the market, S&P said. (Reporting by Karen Brettell; Editing by Leslie Adler)
