{"id":678,"date":"2023-10-13T15:08:29","date_gmt":"2023-10-13T15:08:29","guid":{"rendered":"https:\/\/connectwithfund.com\/investment\/u-s-corporate-borrowers-face-looming-maturity-cliff-as-funding-costs-reach-13-year-high-moodys-says\/"},"modified":"2023-10-13T15:08:29","modified_gmt":"2023-10-13T15:08:29","slug":"u-s-corporate-borrowers-face-looming-maturity-cliff-as-funding-costs-reach-13-year-high-moodys-says","status":"publish","type":"post","link":"https:\/\/connectwithfund.com\/?p=678","title":{"rendered":"U.S. corporate borrowers face looming maturity cliff as funding costs reach 13-year high, Moody\u2019s says"},"content":{"rendered":"
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U.S. corporate borrowers are facing major refinancing risk in the coming years \u2014 at a time when funding costs are the highest in 13 years, Moody\u2019s Investors Service said Thursday.<\/p>\n

Stubborn inflation is keeping interest rates elevated, meaning companies will have to pay up when they roll over debt. <\/p>\n

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Issuers of nonfinancial speculative-grade, or high-yield, debt have a record $1.87 trillion of debt maturing in the period running from 2024 to 2028, the ratings company said in a new report. That\u2019s up 27% from the previous record of $1.47 trillion of debt that matures between 2023 and 2027, published in last year\u2019s report. Moody\u2019s has published 26 reports on refinancing risks and the needs of U.S. speculative-grade issuers. <\/p>\n

The looming maturity cliff is raising default risk and contributing to rising default rates. Moody\u2019s is expecting the U.S. speculative-grade default rate to peak at 5.6% in January of 2024, before easing to 4.6% by August 2024. <\/p>\n

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The increase stems partly from large 2028 maturities, most of which are leveraged loans. It\u2019s also due to the first-time addition of debt issued by non-U.S. subsidiaries.<\/p>\n

The 2028 maturities total $560 billion after record issues of leveraged loans in 2021, which typically have tenors of seven years. <\/p>\n

\u201cThese increases exceeded the declines in maturities resulting from refinancing, debt repayment and rating upgrades to investment grade since last year\u2019s study,\u201d Moody\u2019s said. \u201cHigh interest rates and constrained market access limited the amount of refinanced debt ($414 billion) and new issuance ($242 billion) since last year\u2019s study.\u201d<\/p>\n

Read also: <\/strong>An \u2018iceberg\u2019 awaits with only 10% of the junk-bond market feeling the pinch of higher rates, says BofA Global<\/p>\n

The \u201cpull-forward\u201d effect and \u201camend-and-extend\u201d activity is amplifying refinancing risk for leveraged loans, according to the report. <\/p>\n

\u201cCompanies\u2019 tendency to refinance several tranches of debt in a single bank credit agreement when the first tranche, typically a revolver, comes due could more than double their 2024-26 bank debt maturities to over $1 trillion, representing 80% of the total five-year bank maturities,\u201d the report said.<\/p>\n

Adding to the overall risk, there\u2019s more debt maturing from lower-rated issuers than usual, with the single B category accounting for 62% of total maturities, Moody\u2019s said. The lowest-rated issuers, those rated Caa to C, hold 11% of maturing debt. <\/p>\n

\u201cDebt from distressed companies \u2014 those rated Caa and lower \u2014 accounts for 19% of 2024-25 maturities, up from 16% due in the first two years of last year\u2019s study,\u201d Moody\u2019s said. \u201cCompanies rated Caa and lower will likely find it difficult to refinance maturities at an interest rate they can afford.\u201d<\/p>\n

By sector, technology, media and telecom companies have the most maturities, at 23% of five-year maturities, followed by services with 22% of maturities.<\/p>\n

The following chart from data-solutions provider BondCliQ Media Services shows just how steep the approaching cliff has become. And high-yield issuers were able to sell debt at interest rates of 5% or less during the long period of zero interest rates that preceded the current rate-hike cycle, but they are now having to pay up to 12%.<\/p>\n

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In the investment-grade world, meanwhile, refinancing risks are rising as five-year maturities for nonfinancial investment-grade bond issuers are up 12%, at about $1.26 trillion of debt coming due between 2023 and 2028. The bulk of that comes due in 2025.<\/p>\n

\u201cStill, we expect IG companies to maintain good bond market access and have sufficient cash flow to absorb higher interest costs,\u201d the Moody\u2019s analysts said.<\/p>\n

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But higher-for-longer interest rates will raise funding costs and are a credit negative.<\/p>\n

In response, companies are shortening tenors on new debt and seeking to reduce duration risk.<\/p>\n

As of September, investment-grade issuance has climbed 20% from the year-earlier period. <\/p>\n

\u201cThe proportion of maturities within the first three years of our five-year scope increased to 61%, compared with 58% last year, pushing refinancing risk earlier,\u201d said Moody\u2019s. <\/p>\n

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Read:<\/strong>\u00a0A wrecking ball could hit leveraged loans if the Fed keeps rates high<\/p>\n

Also: <\/strong>Corporate bonds are on sale. How to add cheap Apple, Disney and Microsoft bonds to your portfolio.<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

U.S. corporate borrowers are facing major refinancing risk in the coming years \u2014 at a time when funding costs are the highest in 13 years, Moody\u2019s Investors Service said Thursday. Stubborn inflation is keeping interest rates elevated, meaning companies will have to pay up when they roll over debt. Issuers of nonfinancial speculative-grade, or high-yield, debt have a record $1.87 trillion of debt maturing in the period running from 2024 to 2028, the ratings company said in a new report. That\u2019s up 27% from the previous record of $1.47 trillion of debt that matures between 2023 and 2027, published in<\/p>\n","protected":false},"author":1,"featured_media":679,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[40],"tags":[],"class_list":["post-678","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investment"],"yoast_head":"\nU.S. corporate borrowers face looming maturity cliff as funding costs reach 13-year high, Moody\u2019s says | ConnectWithFund<\/title>\n<meta name=\"description\" content=\"U.S. corporate borrowers are facing major refinancing risk in the coming years \u2014 at a time when funding costs are the highest in 13 years, Moody\u2019s\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/connectwithfund.com\/?p=678\" 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