After conducting two studies and issuing two reports on the upcoming maturities of U.S. company debt, Moody’s concluded in March 2010: “Non-investment grade companies face a rapidly approaching massive chasm of payment obligations bridgeable only by seemingly unachievable refinancing amounts.”18
Two recent reports issued by Moody’s Investors Service warn of the refinancing risks faced by U.S. companies. Over 1,000 companies will have significant debt maturities over the next five years, totaling $1.355 trillion. Of the 1,300 companies that Moody’s rates as speculative-grade, 995 have debts maturing in the next five years. Much of this debt was incurred to finance “mega” LBOs incurred prior to the 2007 global credit crisis. This debt breaks down approximately as follows: $550 billion in investment-grade corporate bonds; and $805 billion debt for speculative issuers, including $555 billion in bank loans and revolving lines of credit and $250 billion in bonds. Approximately $550 billion of the $805 billion of speculative-grade debt matures between 2012 and 2014.
Moody’s acknowledged that a rally in the high-yield bond market has helped ease the risk of defaults, by giving issuers a source of refinancing, but cautioned that it is uncertain whether the high-yield bond markets will continue to fill the financing void left by the banks.19
The top three companies with debt coming due between 2010 and 2014 are Energy Future Holdings (formerly TXU) ($24 billion), hospital operator HCA Inc. ($15 billion), and Ford Motor Co. ($15 billion). The list of “junk” rated issuers is growing. Approximately 40 former investment grade companies with $80 million debt were downgraded during the last two years. The largest of these were Weyerhaeuser, J.C. Penny, Sprint Nextel, Masco and Harrah’s Entertainment.20