Bangkok--11 May--Standard & Poor's
Deteriorating credit market conditions began to add some uncertainty to the refinancing process during 2008 as lower-rated companies and some financial firms were shut out of the credit markets, said an article published today by Standard & Poor's.
Luckily, U.S. credit market conditions have improved over the past several months, though the risk premiums across the corporate bond and loan market are still at elevated levels, according to the article, titled "U.S. Refinancing Study: Elevated Speculative-Grade Refunding Needs Lie Ahead (Premium)."
In general, most investment-grade-rated issuers do not appear to be facing material refinancing risk, except for the potential for higher rates on refinanced issues, as nonfinancial firms are able to tap the bond market and banks have been aided by the Temporary Liquidity Guarantee Program.
Although aggregate speculative-grade refinancing needs are not substantial, low-rated issuers that do need to tap debt markets still face uncertain access to capital. While stronger, 'BB' type credits have been able to access the bond market, only a handful of 'B+' or lower rated issues have come to market. Weaker companies may have to look to extensions or distressed exchanges to handle near-term maturities or otherwise face bankruptcy.
"Whether speculative-grade issuers refinance in the bond or loan market or work out extensions with creditors, it appears that the costs to the issuer definitely will be much higher than prior rates received on maturing securities," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group. "Until the leveraged finance market improves, refinancing will remain a source of default risk."
Approximately $318 billion of investment-grade and $142 billion of speculative-grade bonds and notes, loans, and revolving credit facilities will mature in the last three quarters of 2009. Based on the current schedule, $395 billion of investment-grade and $163 billion of speculative-grade debt is set to mature in 2010.
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