GE Leads $427 Billion of U.S. Debt Due in 2014: Credit Markets
GE, the largest maker of jet engines, has $35.2 billion of debt due in 2014, mostly at its finance unit, followed by banks including JPMorgan Chase & Co. (JPM) and its $28.2 billion, and Bank of America Corp. (BAC)’s $26.9 billion, data compiled by Bloomberg show. Non-financial issuers have $178 billion maturing, ranging from Cincinnati-based Procter & Gamble Co.’s $6 billion to junk-rated Dish Network Corp.’s $1 billion.
Companies have exploited unprecedented stimulus from the Federal Reserve over the past five years to refinance bonds and loans, leaving impending maturities about 30 percent less than the $620 billion confronted in 2012. After rising last year by the most since 2009, yields on benchmark 10-year Treasury notes are forecast to jump again in 2014 for the first back-to-back increase since 2005 and 2006, Bloomberg surveys show.
“One of the beneficial byproducts of this refinancing cycle is that it’s afforded companies the opportunity to extend maturities significantly into the future and reduce near-term funding requirements,” said Edward Marrinan, a macro credit strategist at Royal Bank of Scotland Group Plc’s securities unit in Stamford, Connecticut. “This has definitely helped to suppress default risk.”
Concern is mounting that borrowing costs are on the rise. Yields on 10-year Treasuries, which are a benchmark for corporate bonds, ended 2013 at 3.03 percent, up from 1.76 percent at the end of 2012. Yields will likely finish this year at 3.4 percent, according to the median estimate of 64 economists and strategists surveyed by Bloomberg.
Average yields on the $3.73 trillion of investment-grade bonds tracked by Bloomberg fell to 2.54 percent in May before ending the year at 3.23 percent. Junk bond borrowing costs dropped to 4.66 percent before climbing to 5.86 percent.
The corporate debt coming due in 2014, which includes investment-grade and high-yield securities, accounts for about 7 percent of the $5.75 trillion in outstanding obligations, Bloomberg data show. That compares with 2013, when about 8 percent of the $5.44 trillion in bonds and loans matured. In 2012, debt due within a year was about 12 percent of borrowings.
Non-financial companies with the largest maturities include Procter & Gamble, the maker of Crest toothpaste, and Palo Alto, California-based Hewlett-Packard Co., at $5.5 billion. The amount due at GE Capital, which includes $3 billion of dollar-denominated bonds maturing Jan. 7, is down from $40 billion at the start of 2013, Bloomberg data show.
Seth Martin, a spokesman for Fairfield, Connecticut-based GE, declined to comment on its finances.
The debt due this year from Englewood, Colorado-based Dish, rated Ba3 by Moody’s Investors Service and an equivalent BB- at Standard & Poor’s, represents about 8 percent of its $12.3 billion of bonds due through 2023, Bloomberg data show. High-yield, high-risk, or junk, debt is rated below Baa3 by Moody’s and lower than BBB- at S&P.
Companies have capitalized on unprecedented investor demand and low interest rates with record issuance of dollar-denominated bonds. Companies sold $1.51 trillion of bonds in the U.S. in 2013, split between $1.14 trillion of investment-grade debentures and $380 billion of junk bonds.
JPMorgan was the largest underwriter with 12.2 percent of the market, followed by Bank of America at 10.5 percent and Citigroup Inc. at 9.8 percent, Bloomberg data show.
The record bond issuance has coincided with a ballooning market for speculative-grade loans, propelled by demand for floating-rate debt that can offer protection from rising interest rates. Loan borrowing passed the 2007 peak of $581.5 billion in November, Bloomberg data show.
Concern has waned that companies won’t be able to repay bank loans used to finance a boom in leveraged buyouts before the financial crisis, according to Barclays Plc.
Borrowers that in 2009 faced more than $200 billion of debt maturing in five years have since extended their obligations, leaving a loan maturity profile that’s “much less daunting now and sufficiently backloaded,” Barclays analysts including Bradley Rogoff and Eric Gross wrote in an October report.
Conditions are ripe for the default rate on high-yield bonds and loans to remain below 2 percent through 2015, compared with a long-term average of at least 3.5 percent, JPMorgan strategists wrote last month in a report. Their estimate excludes Dallas-based Energy Future Holdings Corp., the subject of the largest leveraged-buyout in history, which has signaled it may need to file for bankruptcy protection.
“The maturity wall has been lifted,” Jessie Harris, the head of taxable fixed-income research at U.S. Trust, said in a telephone interview. “You’ve got runway that’s been cleared, so it’s hard to imagine that defaults increase in the near term.”
About 6.5 percent of outstanding junk-rated obligations, or $140 billion, are set to mature within the next two years, JPMorgan data show. That’s down from 10.5 percent at the end of 2009, when the Fed’s balance sheet was about $2.2 trillion.
The central bank’s assets have since climbed above $4 trillion as it purchases Treasury and mortgage-backed bonds to pump cash into the financial system, limit interest-rate increases and encourage investment in riskier assets.
The yield on the Bank of America Merrill Lynch U.S. Corporate & High Yield Index ended last year at 4.03 percent, 1.87 percentage points more than similar-maturity Treasuries. That’s down from a yield of 11.1 percent and a spread of 8.64 percentage points on Nov. 24, 2008, the day before the Fed announced the first of three quantitative easing programs.
“Low rates and accommodative Fed policy have led to significant refinancing activity, pushing out a lot of near-term maturities and giving issuers a lot of liquidity and runway,” Gross, a credit strategist at Barclays in New York, said in a telephone interview.
Elsewhere in credit markets, the extra yield investors demand to hold corporate bonds worldwide rather than government debentures ended 2013 at the lowest level in more than six years. Sales of the securities declined for the year, falling short of the record set in 2012. The cost to protect corporate bonds from default in the U.S. declined by the most in four years.
Relative yields on investment-grade bonds from the U.S. to Europe and Asia narrowed 28 basis points for the year to 124 basis points, or 1.24 percentage points, the least since November 2007, according to the Bank of America Merrill Lynch Global Corporate Index. Yields rose to 3.02 percent as of Dec. 31 from 2.58 percent at the end of 2012.
The Bloomberg Global Investment Grade Corporate Bond Index (BCOR) lost 0.02 percent in December, bringing the loss for 2013 to 0.47 percent.
The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark used to hedge against losses or to speculate on creditworthiness, dropped 32 basis points for the year to 62.3 basis points, the biggest decline since a 119.5 basis-point drop in 2009, according to prices compiled by Bloomberg.
The Markit iTraxx Europe Index of 125 companies with investment-grade ratings fell 47.3 to 70.1. The gauge was little changed at 9:33 a.m. in London today. In the Asia-Pacific region, the Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan was unchanged at 129.5.
The indexes typically fall as investor confidence improves and rise as it deteriorates. Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.
Corporate-bond issuance of $3.79 trillion in 2013 compares with $4 trillion in 2012, ranking last year as the third-busiest on record after the $3.94 trillion of offerings in 2009, Bloomberg data show.
The S&P/LSTA U.S. Leveraged Loan 100 index rose 2.16 cents for the year to 98.24 cents on the dollar. The measure, which tracks the 100 largest dollar-denominated first-lien leveraged loans, returned 5.02 percent last year.
The following is a table of the largest U.S. corporate debt maturities next year, using data calculated by Bloomberg:
Company 2014 Debt Maturities General Electric Co. $35 billion JPMorgan Chase & Co. $28 billion Bank of America Corp. $27 billion Citigroup Inc. $22 billion Morgan Stanley $20 billion Goldman Sachs Group Inc. $20 billion Wells Fargo & Co. $9.5 billion MetLife Inc. $7.4 billion Caterpillar Inc. $6.7 billion Procter & Gamble Co. $6 billion
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