Junk-Rated Companies Face $791 Billion in Debt Due by 2019

Updated on

The riskiest companies face $791 billion of maturing debt during the next five years, underscoring concern that issuers that have been gorging on junk-rated bonds and loans will struggle to refinance as interest rates rise, according to Moody’s Investors Service.

Corporate borrowers will need to refinance or repay $476 billion in bank credit facilities and $315 billion in high-yield bonds between now and the end of 2019, the ratings company said in a report released Tuesday. The refinancing needs are the highest since Moody’s projections in 2010, according to the report. Back then, companies faced a $1.2 trillion wall of debt coming due within five years, prompting worries about a looming wave of defaults, but borrowers were generally able to refinance.

With the Federal Reserve holding short-term interest rates near zero for more than six years to spur a recovery from the 2008 financial crisis, companies have tapped bond and loan markets for record amounts of debt. That’s enabled issuers to extend maturities, while fueling new concerns about their ability to refinance those obligations when rates rise or lenders become more cautious.

“Despite the rather benign credit environment, the increasingly uncertain global economic outlook, lower commodity prices, significant five-year maturity schedule and choppier high yield markets may challenge the liquidity conditions for the speculative-grade issuers over the near to medium term,” Moody’s analysts led by Tiina Siilaberg wrote in the report. “The liquidity conditions of the lowest-rated speculative-grade issuers will take on an even more prominent focus in this environment.”

2019 Peak

Analysts at the bond-rating firm said a recent rise in borrowing costs for junk-rated U.S. companies reflects “concerns about the impact of low oil prices, slower economic growth outside of the U.S., and potential for higher interest rates in the U.S.,” adding that market liquidity is tighter than it was last year.

Telecommunications, technology and media companies will account for nearly a quarter of the debt maturing through 2019, the highest percentage for any industry, Moody’s said. Energy and natural resources companies have the second-highest amount by industry, representing 14 percent of total maturing bonds and loans.

Debt maturities are forecast to peak in 2019 with a single-year record $349 billion of bonds and loans coming due, according to Moody’s, which expects debt issuance to rise in 2016 and 2017 as companies anticipate refinancing needs.

Speculative-grade debt is rated Ba1 or below by Moody’s, or BB+ and under by Standard & Poor’s and Fitch Ratings.