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The trend will put continual pressure on the credit marking, peaking in 2011 as bonds issued during the "issuance bubble" in 2001 mature.
Stephen Taub, CFO.com | US
January 16, 2008
Credit markets, already strained mightily by the subprime mortgage crisis, will be plagued over the next few years by increased refundings of existing corporate debt, according to a new report from Standard & Poor’s.
S&P estimated that $258 billion in corporate bonds could be refunded in 2008, up about 14 percent from last year, followed by $249 billion in 2009. And the trend will not be a brief one. "Refunding pressures due to maturing bonds will pick up over the next few years, with 2011 through 2014 experiencing exceptionally high volumes of maturing bonds," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group.
These developments could force some issuers to pay investors a few extra basis points than they might otherwise have needed to in order to close an offering. This comes at a time when spreads are already at historically wide levels. According to S&P, investment-grade spreads were at 208 basis points on Jan. 4, their highest level since March 2003, and speculative-grade spreads stood at 592 basis points, the highest since July 2003.
Altogether, S&P rates 11,731 fixed- and floating-rate U.S. dollar-denominated issues totaling $2.8 trillion bonds outstanding.
Breaking down the data, S&P says that $206 billion of investment-grade debt and $31 billion of speculative-grade debt will mature this year, followed by $195 billion and $47 billion, respectively, in 2009.
S&P expects investment-grade maturities will average $156 billion a year and speculative-grade will average $92 billion a year between 2011 and 2014, based on its current maturity calendar.
Maturities should spike in 2011, when there will be a glut of maturing bonds issued during the issuance bubble in 2001.
The majority of investment-grade redemptions will come from the banking and financial institution sectors. However, industrials figure to account for nearly half of the expected speculative-grade refunding activity in 2008.