Another Iceberg in the Foggy Distance
Posted by Doug Rice on Mon, Feb 22, 2010 @ 05:01 PM
The Capitan of the Titanic was asleep in his cabin when they hit the iceberg.
In today's dangerous waters, it's tough to get any sleep at all because of icebergs like this: High Yield Debt Refunding Requirements
A recent Moody's report says, "U.S. speculative-grade issuers face more than $800 billion in refunding requirements over the next five years, including $555 billion in bank credit facilities and $250 billion of bonds. About 995 of our 1,300 speculative-grade issuers have debt maturing over this period. The enormous amount of debt due over the next five years stems from a robust period of refinancing and leveraged buy-out activity prior to summer 2007."
The tidal wave of junk bond refinancing that will need to take place is concerning as the market may not be in a position to absorb such debt or have the risk appetite for it.
This comes as the Fed, as will other global banks, will very likely be increasing interest rates or may already have, so even if the debt can be rolled over, the price isn't certain at all.
But assuming someone will to lend them money at some price, this can impact the other debt markets and a crowding out could occur. This means other needy folks can't borrow the money they want or need. All of which slows the economy going forward.
More Yuck!
What this means to you
Right this minute, nothing. The debt has been rolled over and we are in another eye of the hurricane waiting for the next wall to see how hard it will hit us.
This is really just another lesson in looking out the foggy windshield and looking for things that might need to be avoided in the future.
Like icebergs of junk bonds.