Scaling a $9.5 Trillion Debt Wall
Companies still have a little time before they must pay down the bulk of $9.5 trillion of debt maturing in the next five years. That’s the good news.
But it’s not getting any easier for these corporations to borrow, at least not in the U.S. In fact, many of these obligations are becoming harder and more expensive to repay at a time when companies face a historic pile of bonds and loans coming due.
This wave of debt coming due through 2020 is bigger than previous five-year schedules of debt maturities in 2013, 2014 and 2015, according to Standard & Poor’s data. It includes about $2.3 trillion of junk-rated debt, with about $418 billion of that rated B- or lower. And it peaks in 2020, with $2.1 trillion of debt coming due, which is greater than the peaks of the most recent previous maturity walls.
U.S. companies account for $4.1 trillion of the debt coming due through 2020, while European issuers are responsible for $3.7 trillion, S&P data show. More than half of all the debt coming due belongs to nonfinancial corporations.
All this is potentially bad news for a global economy that already appears to be losing momentum, especially because central bankers seem to be running out of ways to push investors into riskier securities. The default rate has already started ticking up as the bust in commodity prices forces companies to restructure or file for bankruptcy.
And it’s not just oil drillers and miners that are struggling. Solera Holdings, the subject of one of last year's largest leveraged buyouts, is struggling to raise money in credit markets and has been forced to cut the amount of debt it plans to sell. Corus Entertainment pulled a C$300 million ($221.9 million) junk-bond offering backing a takeover because of difficult market conditions.
While the majority of debt that needs to be repaid is investment grade, it’s unclear whether it’ll remain so by the time it matures. In just eight weeks, credit investors have witnessed more fallen angels, or investment-grade companies getting downgraded to junk, than in any calendar year since 2009, Barclays analysts Jeffrey Meli and Bradley Rogoff wrote in a report on Friday.
It’s not terribly surprising that companies have a bigger debt load to pay down. They borrowed trillions of dollars on the heels of unprecedented stimulus efforts started by the Federal Reserve at the end of 2008 during the worst financial crisis since the Depression. They kept piling on the leverage as central banks around the world doubled down on low-rate policies and kept purchasing assets to encourage investors to buy riskier securities.
If investors don’t return to their carefree ways of lending, global companies will be in for a rude shock. All that money that came so cheaply in the recent past will actually have to be paid back at some point. It’s not just a merry-go-round of lending. The buck must eventually stop with them.
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