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Credit Trends: Global Refinancing--Rated Corporate Debt Due Through 2025 Nears $12 Trillion

S&P Global Ratings rates $11.86 trillion in corporate debt (including bonds, loans, and revolving credit facilities) that is set to mature globally from July 1, 2020, through Dec. 31, 2025. The amount of debt maturing over this period has risen by 2.3% year-to-date. After record volumes of debt issuance in the first half of 2020, companies have paid down, refinanced, or otherwise reduced about 4% of the debt that was scheduled to mature through 2022. This helped to push back the year when maturities reach their peak to 2023 (with $2.28 trillion maturing), from 2022 (when $2.30 trillion was scheduled to mature).

Chart 1

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Global corporate bond issuance reached a record of $2 trillion in the first half of 2020--up 49% year over year. Much of this surge in new issuance followed swift action by central banks globally to support liquidity in the financial markets, including the purchases of corporate bonds, as the COVID-19 pandemic triggered a sudden global recession. Most of this new issuance was used for a combination of refinancing existing debt and for general corporate purposes. Many companies sought to shore up cash balances to finance working capital needs or other cash outflows caused by the sudden loss of revenue.

Chart 2

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This new issuance contributed to a 3% increase (to $16.5 trillion) in the total amount of outstanding investment-grade (rated 'BBB-' and higher) debt instruments (including bonds, notes, loans, revolving credit facilities, and perpetuals, and including those maturing after 2025) during the first half of this year (see chart 3). Of this investment-grade debt, 53% is set to mature through the end of 2025.

Chart 3

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Meanwhile, the total amount of outstanding speculative-grade (rated 'BB+' and lower) debt instruments increased by nearly 6% (to $4.86 trillion; see chart 4). This increase resulted from both record issuance in the second quarter, as well as a number of large fallen angels that were downgraded to speculative-grade from investment-grade in the first half of 2020. Many of these fallen angels experienced a direct hit to revenue from COVID-19 or oil price dislocations. Of this outstanding speculative-grade debt, 64% is scheduled to mature through 2025, and this share is up by four percentage points over the past year, in part due to the fallen angels.

Chart 4

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Overview Of Corporate Debt Maturing Through 2025

The $11.86 trillion in global debt scheduled to mature through 2025 represents about 56% of total rated debt (including maturities after 2025), and this share is down from about 57% one year ago.

Most of the debt maturing through 2025 is from highly rated issuers, and we expect that debt capital markets will provide more than sufficient funding for these companies to meet maturity demands. Of rated corporate debt maturing through 2025, 74% is investment-grade (rated 'BBB-' or higher). Nonfinancial corporates account for 62% of the maturities, and financial services account for the other 38%.

Investors continue to display strong demand for investment-grade debt. New issuance of investment-grade bonds has already surpassed $1.7 trillion globally in the first half of 2020 and is nearing the full-year issuance volume of recent years. Over the past three years, annual investment-grade bond issuance has averaged $2 trillion annually, and this amount surpasses investment-grade debt maturities even in the peak year of 2022, when $1.8 trillion is set to mature.

Chart 5a

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Chart 5b

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By region, the U.S. (including the tax havens of Bermuda and the Cayman Islands) accounts for 46% of the debt, Europe 38%, and the other developed region (which includes Australia, Canada, Japan, and New Zealand) accounts for 10%. Emerging market debt accounts for 7% of maturities through 2025, and this reflects (in part) that a narrower slice of the foreign market debt is rated by S&P Global Ratings. As this study reviews the maturity wall of rated corporate debt, coverage is limited where markets are less mature, with a lower proportion of debt that is rated.

Table 1

Global Schedule For Maturing Corporate Debt
(Bil. $) 2020.2H 2021 2022 2023 2024 2025 Total
U.S.
Financials
Investment-grade 108.7 233.3 223.3 222.8 175.3 162.2 1,125.6
Speculative-grade 3.3 10.1 21.4 26.2 21.4 41.7 124.1
Nonfinancials
Investment-grade 174.0 399.0 443.9 456.5 389.5 435.5 2,298.4
Speculative-grade 38.5 172.4 268.3 367.1 511.8 512.1 1,870.3
Total U.S. 324.6 814.8 956.9 1,072.6 1,098.0 1,151.5 5,418.4
Europe
Financials
Investment-grade 212.6 461.8 470.1 444.8 325.0 310.1 2,224.3
Speculative-grade 2.5 6.5 11.3 12.5 13.8 13.3 59.8
Nonfinancials
Investment-grade 133.5 284.1 328.9 267.9 273.6 257.2 1,545.3
Speculative-grade 16.0 62.5 95.7 120.2 183.3 185.8 663.5
Total Europe 364.6 815.0 906.0 845.4 795.6 766.4 4,492.9
Other Developed
Financials
Investment-grade 83.4 146.7 136.9 114.7 103.1 59.7 644.5
Speculative-grade 1.6 1.6 2.5 5.0 10.8
Nonfinancials
Investment-grade 37.3 83.6 71.2 61.6 47.9 42.3 344.0
Speculative-grade 7.4 16.2 25.0 34.3 26.9 49.8 159.7
Total other developed 128.2 246.5 234.7 212.3 180.4 156.9 1,159.0
Emerging markets
Financials
Investment-grade 24.2 48.9 48.2 37.1 35.2 27.9 221.5
Speculative-grade 4.0 3.1 11.2 8.8 7.7 4.9 39.7
Nonfinancials
Investment-grade 30.0 56.7 83.7 68.4 66.0 46.1 350.9
Speculative-grade 8.0 35.6 35.9 34.4 35.5 30.2 179.6
Total emerging markets 66.2 144.3 179.0 148.7 144.4 109.1 791.7
Totals
Total investment-grade 803.8 1,714.3 1,806.2 1,673.8 1,415.5 1,341.0 8,754.6
Total speculative-grade 79.7 306.4 470.4 605.2 802.8 842.9 3,107.4
Total financials 438.7 910.5 923.9 868.5 683.9 624.8 4,450.3
Total nonfinancials 444.8 1,110.2 1,352.6 1,410.5 1,534.5 1,559.0 7,411.7
Grand total 883.6 2,020.7 2,276.6 2,279.0 2,218.4 2,183.8 11,862.0
Data as of July 1, 2020. Includes bonds, loans, and revolving credit facilities that are rated by S&P Global Ratings. Foreign currencies are converted to U.S. dollars at the exchange rate on close of business on July 1, 2020. Source: S&P Global Ratings Research.

Revolver Drawdowns Pave The Way For Bond-For-Loan-Takeouts

Amid rising cases of the coronavirus across the U.S. and Europe in March 2020, many companies tapped into their revolving credit lines for funding as they were confronted with illiquidity in the primary issuance market. According to LCD, U.S. companies drew down more than $316 billion from revolving credit facilities, and most of these drawdowns took place in March and April. By comparison, we estimate that $634.8 billion in revolving credit facilities that we rate are scheduled to mature through 2025 (and this amount represents the drawn as well as the undrawn amount of the facilities; see chart 6). Just 6% of the currently outstanding revolving credit facilities were issued in the first half of 2020, and most were issued in 2017 through 2019.

After the Federal Reserve and the European Central Bank took extraordinary actions to support liquidity in the primary and secondary credit markets, issuance reached new highs in the second quarter of 2020. Company drawdowns from their revolvers slowed and then reversed as a record share of new bond issuance in the quarter was used to take out existing loans and revolvers. LCD reports that these bond-for-loan-takeouts accounted for $40 billion in the second quarter, and this refinancing activity generally contributed to an extension of the maturity wall. The newly issued bonds in the U.S. and Europe typically had a longer tenor (with a median of 7.7 years), while newly issued term loans had a shorter median tenor of 5.9 years.

Chart 6

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Annual Nonfinancial Corporate Maturities Rise Through 2025

Annual maturities for nonfinancial corporate debt are set to rise through 2025, when $1.56 trillion is set to come due (see chart 6). Near $1.17 trillion of the new issuance in the first half of 2020 was from nonfinancial companies, and some of this new debt was used to refinance existing debt maturing in the next few years. Debt maturing in the second half of 2020 through 2023 was decreased by 5% (or $250 billion), while the total maturing in 2023-2024 rose by 10% (an increase of $292 billion).

Chart 7

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The majority (61%) of nonfinancial corporate debt maturing through 2025 is investment-grade. These investment-grade nonfinancial maturities peak in 2022 (when $928 billion matures). Speculative-grade maturities account for just 16% of the nonfinancial maturities in 2020, and this share steadily grows in subsequent years, approaching 50% in 2025.

By rating category, 'BBB' accounts for the largest share of nonfinancial debt maturing through 2025, with $2.9 trillion, and less than one-third of this ($858 billion) is rated 'BBB-', the lowest investment-grade rating. While the 'BBB' category accounts for 39% of nonfinancial corporate debt maturing through 2025, the 'BBB' category represents a slightly higher share of all nonfinancial debt (at 42%) when we include those instruments maturing after 2025, as investment-grade debt is often issued with a longer maturity than speculative-grade debt.

Chart 8

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Speculative-Grade Nonfinancial Maturities Reach A Peak Of $777.9 Billion In 2025

Of nonfinancial corporate debt maturing through 2025, $2.87 trillion is speculative-grade, and the maturities of this debt are concentrated in the years 2023-2025, when 73% is set to mature. Speculative-grade nonfinancial corporate debt does not reach its peak maturity year until 2025 (with $777.9 billion scheduled to mature). Speculative-grade maturities are currently set to exceed investment-grade in 2026. However, we expect that investment-grade maturities will continue to rise in those years, eventually surpassing speculative-grade as new issuance comes to market (see chart 9).

Chart 9

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Speculative-grade nonfinancial debt maturing in the second half of 2020 through 2021 was reduced by nearly 13% (or $54 billion) in the first half of this year (see chart 10). While most of this debt was reduced through new issuance that was used to pay down existing debt, nearly $18 billion in debt that was set to mature in 2020 and 2021 defaulted during the first half of 2020 (and this includes distressed exchanges). Defaults in the first half of the year were concentrated in the oil and gas, retail and restaurant, and consumer products sectors, where some of the defaulting issuers included: Valaris plc, Chesapeake Energy Corp., Revlon Inc., Chinos Intermediate Holdings A, Inc. (the parent entity of J. Crew Group Inc.), and Neiman Marcus Group LTD LLC.

Chart 10

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While speculative-grade debt accounts for less than 40% of nonfinancial maturities through 2025, this debt also has a smaller pool of potential investors than investment-grade. With fewer investors, speculative-grade issuers may face illiquidity in the primary market during periods of market stress. For instance, while new investment-grade issuance came to a sudden halt for a week at the end of February, the primary market remained largely closed to new speculative-grade bond and loan issuance during much of March. However, even with this freeze on speculative-grade issuance at the end of the first quarter, leveraged issuance (including global issuance of speculative-grade bonds and leveraged loans) exceeded $500 billion in the first half of 2020 as an increase in bond issuance offset a decline in loan issuance. This pace of issuance (if sustained) would be more than sufficient to meet refinancing demands.

Within speculative-grade nonfinancial debt maturing through 2025, $811.5 billion is rated 'B-' and lower. While this low-rated debt is most prone to refinancing stress amid tightened financing conditions, Companies have some time to refinance much of this debt, as most is set to mature in 2023 and later. In the nearer term, $87 billion is scheduled to mature in the second half of 2020 through 2021.

Utilities And Consumer Products Have The Most Nonfinancial Corporate Debt Maturing Through 2025

The consumer products and utility sectors are the nonfinancial sectors with the highest amount of debt maturing through 2025 (see table 2).

The consumer products sector has $763 billion that is scheduled to mature globally through 2025, and this sector has faced elevated downgrades and a rising a negative bias (the percentage of issuer credit ratings with negative outlooks or on CreditWatch with negative implications) as COVID-19 cut into consumer demand. While demand increased for branded consumer staples, the durables, apparel, cosmetics, and food service subsectors took a hit that led to an increase in negative rating actions, these actions were concentrated among lower-rated issuers, with fewer rating actions on investment-grade issuers. Of the sector's debt maturing through 2025, 62% is investment grade, the majority of which was issued by consumer staple companies that generate strong cash flow.

Utilities have $719.5 billion in debt instruments that are scheduled to mature through 2026. Of this debt, 83% is investment-grade, and high ratings in the utility sector reflect the regulated nature of much of the industry. While we expect that, post-COVID, the sector will continue to face challenges, including lower commercial and industrial load, higher bad debt expense, lack of consistent access to the equity markets, delayed rate case filings, and underfunded pensions. However, with the high concentration of investment-grade credit in the sector, we expect only a modest weakening to the industry's overall credit quality.

The media and entertainment sector has the most speculative-grade debt maturing through 2025 with $437.2 billion, and this speculative-grade debt accounts for 66% of the sector's debt maturing through 2025. The media and entertainment sector includes the lodging, leisure, and gaming subsectors, which have faced an unprecedented decline in revenue and cash flow due to travel bans and social distancing.

Credit quality remains weak in the oil and gas sector following the collapse in oil prices earlier this year. This sector has $559 billion scheduled to mature through 2025, and 35% of this debt is speculative-grade. Even as oil prices have recovered partially from their lows, we expect to see a high number of defaults over the coming year from low-rated issuers in this sector, with capital market access limited for high-yield credits and shrinking liquidity due to cuts to the borrowing bases of revolving credit facilities.

Table 2

Maturing Debt By Major Nonfinancial Sectors
(Bil. $) --Investment-grade-- --Speculative-grade-- Total
Sector 2020.2H 2021 2022 2023 2024 2025 2020.2H 2021 2022 2023 2024 2025
Aerospace and defense 4.5 10.3 10.8 16.9 8.7 22.1 1.4 7.5 6.3 9.1 16.9 20.3 134.6
Automotive 47.8 101.2 75.6 69.2 51.1 32.5 6.3 29.0 28.4 29.0 38.9 34.0 542.9
Capital goods 24.8 52.4 52.0 43.4 33.8 39.0 3.2 7.3 10.9 17.2 32.0 43.0 359.1
Consumer products 48.0 85.5 91.8 87.6 81.3 75.3 3.2 17.6 44.5 60.1 76.9 91.2 763.0
CP&ES 18.7 33.0 43.6 35.4 42.4 30.5 4.0 16.4 19.1 35.9 57.8 48.3 385.1
Diversified 0.8 1.1 2.1 1.5 2.7 0.7 0.0 0.0 0.0 0.5 1.4 0.0 10.8
Forest 5.1 13.8 15.0 11.1 11.3 12.9 0.4 3.5 5.6 9.9 18.4 20.9 127.8
Health care 21.5 63.4 76.9 69.3 61.8 67.3 9.1 21.9 46.6 54.6 78.1 100.5 671.0
High technology 26.6 86.3 73.9 90.2 63.0 61.1 5.3 10.2 26.3 55.9 76.0 80.9 655.8
Home/RE 9.8 27.1 44.2 47.0 51.4 51.2 6.3 23.4 26.2 20.8 16.4 19.0 343.0
Media and entertainment 19.4 34.9 33.7 37.9 45.6 40.9 4.5 27.3 56.1 83.7 144.8 120.8 649.5
Metals 7.9 23.4 29.3 19.3 15.5 10.9 1.7 6.1 14.6 17.0 14.5 20.5 180.6
Oil and gas 30.0 49.0 87.1 67.4 62.1 65.4 8.6 45.9 45.7 34.4 33.1 30.8 559.4
Retail/restaurants 14.4 35.8 42.3 35.8 32.0 36.1 2.1 11.4 23.9 36.7 32.5 40.5 343.5
Telecommunications 32.5 59.8 75.8 72.4 63.3 79.5 6.5 29.9 39.9 43.0 63.6 63.9 629.9
Transportation 14.8 37.8 43.6 50.7 41.5 54.0 2.1 13.8 17.0 19.5 25.3 16.1 336.1
Utilities 48.4 108.6 130.2 99.4 109.5 101.9 5.2 15.4 13.7 28.7 31.0 27.4 719.5
Total 374.9 823.5 927.8 854.4 777.0 781.1 70.0 286.7 424.9 556.1 757.5 777.9 7411.7
Metals--metals, mining, and steel. Forest--Forest products and building materials. CP&ES--Chemicals, packaging, and environmental services. Home/RE--Homebuilders/real estate companies. Media and entertainment includes leisure. Data as of July 1, 2020. Includes bonds, loans, and revolving credit facilities that are rated by S&P Global Ratings. Excludes debt instruments that do not have a global scale rating. Foreign currencies are converted to US$ at the exchange rate on close of business on July 1, 2020. Source: S&P Global Ratings Research.

Financial Services Debt Maturities Peak In 2022 At $923.9 Billion

Financial services have $4.45 trillion in rated debt that is scheduled to mature through 2025, and maturities rise to a peak of $923.9 billion in 2022. We expect the credit market may have already accommodated some of the debt remaining in this year, given normal data-reporting lags.

Since the beginning of the year, the amount of financial services debt maturing in the second half of 2020 through 2025 rose by 5%, with the largest increase of $113 billion in 2025 (see chart 11).

Chart 11

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41% Of Financial Services Debt Maturing Through 2025 Is In The 'A' Category

About 95% of the debt from financial services companies maturing through 2025 is rated investment-grade. The largest share of this financial services debt is rated in the 'A' category (at 41%), followed by the 'BBB' category (at 26%) (see chart 12).

Most of this financial services debt is from banks and financial institutions. While credit conditions for banks deteriorated abruptly due to the COVID-19 pandemic and the oil shock, bank ratings have remained resilient as they entered this period with strengthened balance sheets, and benefitted from massive support from authorities to retail and corporate markets.

In addition to the investment-grade debt, about $234.4 billion in speculative-grade debt from financial services is set to mature through 2025. This mostly consists of debt from emerging market banks, subordinated debt from European banks, and from finance companies in the U.S.

Chart 12

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Europe Accounts For The Majority Of Financial Services Debt

By region, Europe accounts for 51% of financial services debt maturing through 2025 (with $2.28 trillion), followed by the U.S. (with $1.25 trillion), and the other developed region (with $655.3 billion) (see chart 13). Emerging markets have the lowest amount of financial services debt maturing through 2025 (with $262.2 billion), and 16% of the debt in this region is speculative-grade, which is a higher proportion than in the other regions.

While emerging market banks faced more rating actions in the early days of the pandemic than those in developed markets, we expect most emerging market banks to face an earnings, rather than capital, stress as a result of the pandemic and oil price shocks.

Chart 13

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Data Approach

For this analysis, we investigated the potential refunding needs of financial and nonfinancial corporate debt rated by S&P Global Ratings.

For each region, we included the rated debt of all parent companies and their foreign subsidiaries. We counted the debt of all of these companies regardless of the currency or market in which the debt was issued. We converted any non-U.S.-dollar-denominated debt to U.S. dollars based on the end-of-day exchange rates on July 1, 2020.

The issue types covered include loans, revolving credit facilities, bank notes, bonds, debentures, convertible bonds, covered bonds, intermediate notes, medium-term notes, index-linked notes, equipment pass-through certificates, and preferred stock. In the case of revolving credit facilities, the amount usually represents the original facility limit, not necessarily the amount that has been drawn. Debt amounts are tallied as the face value of outstanding rated debt instruments. We excluded individual issues that are not currently rated at the instrument level, as well as instruments from issuers currently rated 'D' (default) or 'SD' (selective default).

We aggregated the data by issue-level credit rating. We also aggregated sector-specific data according to the subsector of the issuer. The financial sector is defined as all banks, brokers, insurance companies, asset managers, mortgage companies, and other financial institutions. We aggregated debt issued by financial arms of nonfinancial companies with the sector of their corporate parent. We excluded government-sponsored agencies such as Fannie Mae and Freddie Mac, project finance, and public finance issuers.

Related Research

This report does not constitute a rating action.

Ratings Performance Analytics:Evan M Gunter, New York (1) 212-438-6412;
evan.gunter@spglobal.com
Head of Ratings Performance Analytics:Nick W Kraemer, FRM, New York (1) 212-438-1698;
nick.kraemer@spglobal.com
Research Contributor:Nivritti Mishra Richhariya, CRISIL Global Analytical Center, an S&P Global Ratings affiliate, Mumbai

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