Moody's Warns on Deluge of Debt

FEBRUARY 2, 2010

Moody's Warns on Deluge of Debt

By MIKE SPECTOR

Moody's Investors Service warned of sizable refunding requirements for nearly 1,000 companies over the coming years, questioning whether they will be able to refinance more than $800 billion in debt taken on in the middle part of the last decade.

The credit-rating firm's annual report on risks faced by weaker companies and their investors found that 995 of the 1,300 companies Moody's rates as "junk" have debts maturing in the next five years. The debts are largely tied to the last decade's leveraged-buyout boom.

Moody's said these companies could face trouble refinancing their balance sheets and avoiding default should the economy and lending markets remain weak. The biggest maturities come between 2012 and 2014, when about $700 billion in bank and bond debt comes due, Moody's found. Maturities over the next two years are much smaller, at about $100 billion.

"Current debt maturities are very manageable, and longer-term maturities are vulnerable if the economic recovery doesn't continue to take hold," said Kevin Cassidy, a senior credit officer at Moody's. If unemployment rises and credit conditions worsen in the next few years, "things could get tough pretty quick for some companies," he said.

The report comes as junk-rated companies—or those with speculative-grade credit ratings—have tapped a hot high-yield market to shore up balance sheets and avoid restructurings or bankruptcy filings. Investors chasing yield snatched up about $145 billion in these riskier bonds last year, among the highest issuance on record. Most of that new debt went to refinance bank loans and other liabilities as opposed to corporate investments. Of the $200 billion in high-yield bonds and leveraged bank loans rated by Moody's in 2009, nearly 79% of the proceeds went toward refinancing debt.

Moody's said historical data suggest the market can handle the looming debt maturities, but Mr. Cassidy warned bank lending remains tight and the high-yield market might be unable to handle the refinancing demand alone. As part of its analysis, Moody's highlighted the 10 companies that have the most debt coming due over the next five years. The maturity data date back to November, Moody's said. Some companies' debt totals have changed slightly since then.

Among companies Moody's rates as junk, Dallas-based Texas Competitive Electric Holdings Co., a subsidiary of Energy Future Holdings Corp., leads the pack with $24 billion in debt due in 2013 and 2014, Moody's said. A spokeswoman for the energy provider said the company addressed the debt load during various refinancing transactions over the past few months.

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