Bangkok--13 Jul--Standard & Poor's
European borrowers will need to refinance ?2.5 trillion of debt by the end of 2013 against a backdrop of concerns about the banking industry and the potential effects of any further deterioration in sovereign creditworthiness, said an article published today by Standard & Poor's Global Fixed Income Research.
In the article, titled "Public Finance Woes Could Hamper Europe's Ability To Meet Upcoming Refunding Needs," Standard & Poor's presents the findings of its study of European refinancing needs. "We estimate that $3.03 (?2.5) trillion of nonfinancial and financial debt will mature in Europe from the second half of 2010 through 2013," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research. "This compares with $2.4 trillion in corporate debt coming due in the U.S. through 2013."
Of the European total, $628 (?511) billion is due in 2010. Total maturities amount to $903 (?734) billion in 2011, $883 (?718) billion in 2012, and $618 (?502) billion in 2013.
"Given the role governments played as a key stabilizing force for banks during the most recent financial crisis, any further deterioration in sovereign creditworthiness likely will have negative implications for financial and nonfinancial entities' borrowing costs and access to markets," said Ms. Vazza. These issues could affect the refinancing pipeline in a number of ways:
European financial issuers, which account for 71% of the total refunding pipeline through 2013, could face greater interest-rate risk. Prevailing low interest rates have reduced the cost of carry for banks, but rising interest rates could erode this advantage.
The growing pipeline of sovereign funding and refunding needs could crowd out capital away from corporates. Standard & Poor's estimates that medium- to long-term borrowing among European governments would likely reach a peak of $1.8 (?1.5) trillion in 2010.
Lending conditions, which had improved markedly in the early months of 2010, have since deteriorated in response to weak demand for loans as a result of sluggish economic growth. At the same time, the supply of funds may become constrained as banks choose to allocate their funds toward balance-sheet repair, including the building of large liquidity buffers, rather than lend to corporate borrowers.
Even though the overall total debt amount is higher in Europe than in the U.S., the overall credit impact is mitigated partially by the fact that about one-quarter of maturing debt in the financial segment over the next several years is covered bonds. These are typically highly rated securities issued by banks and backed by a dedicated pool of mortgage-backed or public-sector loans. Other key findings from our analysis include:
The vast majority (91%) of debt maturing in the next three years comes from investment-grade European financial entities.
Nonfinancial issuers have a much smaller amount of debt maturing, but we should note that the share likely would be higher if we included the leveraged borrowers that received financing in the private market in our totals. Refinancing needs are high in capital-intensive sectors, such as telecommunications and utilities.
Entities from Portugal, Ireland, Greece, and Spain have a combined $395 (?321) billion of maturing debt through 2013.
With 16% of the total share of debt coming due through 2013, Germany has the largest exposure by country in the financial segment. Other countries with sizable refunding exposure (in descending order) are the U.K., France, and Sweden. Together, these four countries account for more than 50% of the total financial debt maturities in Europe.
The line-up of countries with the largest nonfinancial refinancing needs is slightly different. France accounts for about 20%, followed by the Netherlands and the U.K., at 18% each, and Germany at 14% (combined share of 70%).
The report is available to RatingsDirect on the Global Credit Portal subscribers at www.globalcreditportal.com and RatingsDirect subscribers at www.ratingsdirect.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 or sending an e-mail to
[email protected]. Ratings information can also be found on Standard & Poor's public Web site by using the Ratings search box located in the left column at www.standardandpoors.com. Members of the media may request a copy of this report by contacting the media representative provided.
Media Contact:
Mimi Barker, New York (1) 212-438-5054,
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Analyst Contact:
Diane Vazza, New York (1) 212-438-2760
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