Bangkok--12 Nov--Standard & Poor's
Funding pressures in Europe have escalated sharply since September as stress in the global financial system has accelerated, said an article published by Standard & Poor's. Against this backdrop, we estimate that a cumulative total of $2.1 (?1.6) trillion of debt rated by Standard & Poor's Ratings Services will mature in Europe beginning in the fourth quarter of 2008 and ending in 2011.
Given the soaring cost of capital, the sizable pipeline of debt coming due suggests substantial refinancing risk, according to the article, titled "Gaping Refunding Pipeline In Europe Intensifies Financial Challenges," published yesterday on RatingsDirect.
"However, the ultimate credit impact needs to be placed in the context of a financial landscape increasingly peppered with government guarantees that are still taking shape," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group. For example, part of the $2.3 (?1.7) trillion committed by some European countries on Oct. 13 to shore up the banking system is likely to be earmarked for guaranteeing medium-term issuance and may thereby offset refinancing pressure, even if private markets fail to revive fully.
"Other mitigating factors allude to some protection for covered bonds, which historically have been a safe and cost-effective funding mechanism for secured debt, where refinancing could be less problematic because covered bonds are already eligible for refinancing with central banks," said Ms. Vazza.
With a 72% share of the total, the financial segment accounts for a significant majority of the $2.1 (?1.6) trillion. Although nonfinancials have a much smaller share, maturity exposure is high in capital-intensive sectors, such as telecommunications and utilities, which have a cumulative total of $121 (?95) billion and $79 (?62) billion, respectively, coming due in the same timeframe. Not all countries in Europe are equally placed in terms of refinancing risk, with Germany leading the pack based on cumulative exposure, with $696 (?544) billion, largely stemming from the financial segment.
The report is available to subscribers of RatingsDirect, the real-time Web-based source for Standard & Poor's credit ratings, research, and risk analysis, at www.ratingsdirect.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-9823 or sending an e-mail to [email protected]. Ratings information can also be found on Standard & Poor's public Web site at www.standardandpoors.com; under Credit Ratings in the left navigation bar, select Find a Rating, then Credit Ratings Search. Members of the media may request a copy of this report by contacting the media representative provided.
Media Contact:
David Wargin, New York (1) 212-438-1579, [email protected]
Analyst Contacts:
Diane Vazza, New York (1) 212-438-2760