The escalating Greek crisis. The looming Federal Reserve interest rate hike. The potential closure of U.S. capital markets. None of these are enough to threaten junk-rated companies, according to analysts at Goldman Sachs.
The near-zero interest rate environment that has remained in place since the collapse of Lehman Brothers has allowed junk-rated corporate borrowers to tap the market repeatedly, selling more bonds at a cheaper financing cost and pushing out their borrowings.
This means that companies with relatively weaker balance sheets have a buffer, even if external shocks were to threaten their access to capital markets, Goldman analysts Bridget Bartlett and Spencer Rogers said in a report issued on Tuesday. They estimated that 75 percent, or $606 billion, of the high-yield bonds sold over the past three years have been used to refinance at cheaper levels, leaving companies in much better shape when it comes to their debt profiles.
You can see the trend in the chart below, which shows the shift in the "maturity wall," or the amount of debt that companies will have to pay back or refinance in the coming years. By Goldman's estimates, the five-year maturity wall has been extended by three years. This means that back in 2012, 63 percent of high-yield debt was scheduled to come due in the five years from 2016 to 2020. Now 64 percent of debt outstanding is set to start maturing three years later, from 2019 to 2023, Goldman said.
In essence, the maturity wall has been stretched farther down the road, even though the absolute amount of high-yield debt outstanding increased as record-low borrowing costs and yield-hungry investors encouraged companies to tap the market repeatedly.
As the Goldman analysts put it:
On a notional basis, the near-term debt burden today has doubled over the past three years from $8.5bn due in ≤ 1y in 2012 to $16.3bn coming due in ≤ 1y today. However, this expansion is symptomatic of the substantial growth of the high-yield market overall, which has risen sharply from $0.92trn in 2012 to $1.45trn today.
Still, the Goldman analysts concluded that all the refinancing means that high-yield companies are in good shape to weather almost any upcoming storm—except one. Here's what they said: "Barring a recession scenario, this should help mitigate default risk in the high yield market."