We’ve been keeping a watchful eye on this year’s junk debt bubble rally, if only because its implications could stretch well into the future.
It remains unclear whether investors have made a wise decision by going further out on the yield curve and snapping up speculative-grade bonds in near-record amounts. (An updated estimate from Reuters (HT Lex) in early September puts global high yield debt issuance at $177bn this year.)
But the rally has certainly brought welcome relief to companies with debt maturing in the next few years.
In a new report, Moody’s starts to put some numbers on just how much of this year’s junk bond and leveraged loan issuance has eased the pressure on companies to pay off their investors and lenders. The agency estimates that nearly two-thirds of the junk debt issued this year has gone to refinance existing debt, with about a quarter issued to finance mergers and acquisitions.
Since February, when Moody’s last produced this report, speculative-grade companies have refinanced 37% of junk bonds that were coming due this year through the end of 2012, reducing the burden from $87bn to $55bn.
Unfortunately, Moody’s doesn’t yet have such precise numbers on how much of this year’s speculative-grade issuance has gone to refinancing the staggering $550bn in debt coming due in 2013 and 2014.
Writes Moody’s:
The $550 billion of 2013 and 2014 speculative-grade debt maturities noted in our annual refunding report is probably much lower now because of the robust debt issuance in the first half of 2010. We believe maturities post 2014 have increased because most issuers refinanced existing debt, pushing back maturities, rather than permanently reducing leverage.
Moody’s says it is looking into the details and will produce a report on these maturities in early 2011.
Of course, even in the best case scenario, there will remain several hundred billion dollars in the two years after 2012. These companies are surely hoping that the junk rally can continue.
Related links:
A brief look back at a weird August – FT Alphaville
All junk, all the time – FT Alphaville
High-yield bonds – Lex