Knocking Down the 'Maturity Wall'
• "Market conditions have clearly eased"
In the credit markets, it's called the "maturity wall"—the $1.2 trillion of corporate debt that will have to be paid off or refinanced over the next five years. The worry is that with bank lending at about a quarter of its pre-crisis levels, there will be a second wave of corporate debt defaults to rival last year's record $628 billion.
Over the past 15 months, though, the wall has been getting less fearsome. One reason: Investors have been pouring cash into mutual funds that invest in risky debt, making more money available to companies that want to refinance debt. "Chipping away is an understatement," says Martin Fridson, chief executive of New York-based money manager Fridson Investment Advisors. Junk-bond sales are "really mitigating that wall of maturity risk."
Since the beginning of last year, borrowers have been able to cut the amount of high-yield loans and bonds coming due in the next five years by $196 billion, according to JPMorgan Chase (JPM). In one recent offering, Cablevision Systems, (CVC) the New York area cable TV provider, sold $1.25 billion of bonds in mid-April, using the proceeds to refinance.
Improvement in the credit markets can go only so far, though. To get past the maturity wall, companies will need the help of a prosperous economy. "Market conditions have clearly eased," says Diane Vazza, head of Standard & Poor's (MHP) global fixed-income research. But "companies that have these maturities in 2012, 2013, and 2014, they still need to generate top-line growth."
The bottom line: With super-safe instruments like Treasuries and CDs paying tiny yields, investors are taking risks to get better returns.