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Credit Trends: Global Refinancing--Rising Rates And Slowing Issuance Drag On Corporate Funding Conditions

While rising interest rates and slowing issuance volumes provide for more difficult financing conditions, maturities for rated financial and nonfinancial corporate debt appear to remain broadly manageable. Companies lengthened maturities, and at historically low rates, during the more favorable financing conditions of 2021. As a result of last year's issuance, companies entered 2022 with less debt maturing over the next 18 months, and the largest annual maturities do not come due until 2025 and beyond.

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S&P Global Ratings rates $22.6 trillion in corporate debt (including bonds, loans, and revolving credit facilities from financial and nonfinancial corporate issuers). 12% of this debt is scheduled to mature over the next 18 months (through Dec. 31, 2023), and 48% is set to come due over the next five years (through June 30, 2027).

This analysis is based on a review of debt instruments (including bonds, notes, loans, and revolving credit facilities) rated by S&P Global Ratings and issued by financial and nonfinancial corporate borrowers globally. Debt amounts have been aggregated by issue credit rating, and regional breakouts are aggregated by the parent's country of incorporation.

Volatile capital markets and sharply rising benchmark interest rates have hampered both supply and demand in the primary market so far this year.  Speculative-grade (rated 'BB+' or lower) issuance volumes fell markedly in the first half of 2022, while investment-grade (rated 'BBB-' or higher) issuance declined modestly.

Investment-grade bond issuance was down by nearly 9% globally in the first half of 2022, but even with this recent decline, issuance volumes appear to be sufficient to meet upcoming investment-grade refinancing demand. Over the past eight years, this issuance has exceeded $2 trillion annually--higher than the upcoming peak in investment-grade bond maturities of $1.6 trillion in 2025.

Chart 1

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Even though a continuation of recent issuance volumes would be sufficient for upcoming maturities, the risk remains that a prolonged recession or capital market disruption could lead to periods of reduced funding capacity or sharply higher funding costs that challenge companies' ability borrow through capital markets.

Speculative-grade debt accounts for a smaller share of total debt outstanding, but this debt is more vulnerable to refinancing risk.  Investors' heightened risk aversion this year has already presented challenging financing conditions for some lower-rated borrowers.

Speculative-grade bond issuance fell by 75% in the first half of 2022, and leveraged loan issuance declined by 40%. Even with these declines, leveraged finance issuance of speculative-grade bonds and leveraged loans together totaled near $425 billion globally in the first six months of 2022. While this may be sufficient for speculative-grade maturities over the next 18 months, riskier borrowers are facing tough financing conditions. The longer conditions remain this tight, the greater the risk that vulnerable issuers, regions, or sectors could feel the squeeze (see chart 2).

Chart 2

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Companies typically refinance debt six to 18 months ahead of its maturity. Consistent with this, the amount of debt maturing through 2024 has been reduced since the start of 2022 (see chart 3). Even with a lower volume of new issuance this year, maturities through 2024 have eased, with the new debt adding to maturities in subsequent years.

However, with the issuance slowdown, maturities grew at a slower pace than in 2021. In the first half of 2022, the amount of debt maturing in 2026-2028 rose by 7%, down from a 13% pace in the second half of 2021.

Chart 3

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Rising Rates Present Higher Funding Costs

In response to stubbornly high inflation, central banks have aggressively tightened monetary policy in 2022, and the resulting rapid increases in interest rates pose higher funding costs to issuers. The Federal Reserve and the Bank of England both hiked rates multiple times in the first half of 2022, and in July, the European Central Bank lifted rates for the first time in 11 years. More hikes are expected to follow in the second half of 2022.

Issuers of fixed-rate debt could see their yields rise as current debt matures and is replaced by higher-yielding issues. And issuers of floating-rate debt face more immediate increases once the benchmark rate rises above the interest rate floor of the issue. Near 26% of the debt maturing through 2023 is floating rate, but for speculative grade, the share is higher, at 44%. (see charts 4 and 5, and table 2 in the appendix).

Chart 4

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Chart 5

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Exchange Rate Fluctuations Shrink Level Of Outstanding Debt (In Dollars)

Exchange rate fluctuations caused a rare contraction in the level of total debt instruments outstanding in the first half of 2022.  The strengthening of the U.S. dollar reduced the debt amount (measured in dollar terms) of non-U.S. dollar-denominated debt. This led to a contraction of about 1% in dollar terms year over year. The total debt level fell to $22.6 trillion (see chart 6). However, at constant exchange rates (as of Jan. 1, 2022), the total debt level would have risen by 1.7%.

With these swings in exchange rates, issuers with debt denominated in U.S. dollars face more expensive debt repayment costs, unless they are adequately hedged from exchange rate risk, such as through U.S.-dollar revenues or other currency hedges.

Chart 6

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Near-Term Nonfinancial Debt Paydowns Continue

Maturities of debt maturing over the next 18 months continue to fall as issuers manage refinancing risk.  So far this year, nonfinancial corporate debt maturing over the next 18 months has declined by 12%, with speculative grade showing a bigger drop of 27%. The pace of this near-term debt reduction was slightly higher than the 10% over the same period last year for nonfinancials overall (and 25% for speculative grade). Apart from debt paydowns, the upgrades of several rising stars (issuers upgraded to investment grade from speculative grade) further reduced the amount of speculative-grade debt maturing through 2023 (by about $12 billion).

Chart 7

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Chart 8

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Exchange rate fluctuations also contributed to some of this contraction. Holding exchange rates constant, nonfinancial debt maturing through 2023 would have been reduced by 10% (and speculative grade by 25%) in the first half of 2022, matching the pace from the first half of 2021.

In our refinancing studies, we typically find upcoming nonfinancial corporate debt maturities reach their peak about four to five years out. Consistent with this, nonfinancial maturities now reach their highest level of $1.58 trillion in 2026. Speculative grade, however, has a longer window to refinance or pay down debt as these speculative-grade maturities reach their peak in 2028. Much of this $826 billion in speculative-grade debt maturing in 2028 was issued in 2021, when financing conditions were especially supportive.

Nonfinancial corporate debt maturities rise through 2026. This debt, especially the portion maturing over the next 18 months, is predominately investment grade.

  • 10% of nonfinancial corporate debt is scheduled to mature over the next 18 months, and 46% over the next five years (through June 30, 2027).
  • 78% of this debt maturing over the next 18 months is investment grade, and the 'BBB' category accounts for the largest share (at 48%), followed by the 'A' category (at 24%) (see chart 9).
  • Investment-grade maturities reach their highest level in 2024, while speculative-grade maturities continue to rise in subsequent years.
  • Autos and utilities are the two nonfinancial sectors with the most debt maturing over the next 18 months (see table 3 in the appendix).

Chart 9

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While just 22% of the debt maturing through 2023 is speculative grade, this share gradually rises--eventually surpassing investment grade in 2028.

  • The 'BB' category accounts for the majority of speculative-grade nonfinancial annual maturities through 2023.
  • The media and entertainment and telecommunications sectors have the largest amounts of speculative-grade debt maturing over the next 18 months.
  • The 'B' category begins to account for the majority of annual speculative-grade maturities in 2025.
  • Within speculative grade, the lowest-rated debt--'B-' and lower--would likely show the most refinancing vulnerability, particularly when investors are increasingly risk averse.
  • Nearly $78 billion in debt rated 'B-' or lower is scheduled to mature over the next 18 months, and annual maturities of this lower-rated debt climb to $208 billion in 2026 (see chart 10).

Chart 10

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Financial Services Debt Maturities Peak In 2025 At $880 Billion

Recent financial services issuance volumes have been more than sufficient to meet upcoming refinancing demands.  Financial services bond issuance was down by 8.5% in the first half of 2022 to $827 billion as a robust first quarter offset the second-quarter slowdown. This issuance has held above $1.2 trillion annually over each of the past eight years. By comparison, financial services maturities peak at $880 billion in 2026, well below recent issuance volumes (see chart 11).

Chart 11

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Financial services companies reduced maturities through 2023 by 10% in the first half of 2022. With the new issuance, debt maturing from 2024 through 2027 increased by about 10%.  Exchange rate fluctuations also had an effect on the shift in annual maturity levels. Holding exchange rates constant, maturities through 2023 would have seen a less pronounced 6% decrease, while maturities in 2024-2027 would have increased by nearly 15%.

The first half of 2022 marked a bigger drop in near-term debt maturities than over the same period last year (when debt maturing over the upcoming 18 months was reduced by 5%) and a larger increase in debt maturing in subsequent years (see chart 12). Financial services issuance fell by a smaller percentage than overall nonfinancial issuance in the first half of 2022 as investment grade was less affected by investors' growing risk aversion.

Chart 12

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A Larger Share Of Financial Services Debt Is Investment Grade

Financial services have $1.22 trillion in rated debt scheduled to mature over the next 18 months (and $4.17 trillion over the next five years), and this represents 15% (and 52%) of financial services total debt.  While a higher proportion of total financial services debt matures over the next few years than does nonfinancial corporates, a higher share of financial services debt is investment grade:

  • 95% of financial services debt maturing through 2023 is investment grade.
  • The largest share of this debt is in the 'A' category, at 43%, followed by the 'BBB' category, with 25% (see chart 13).
  • Just 4.5% ($55 billion) of financial services debt maturing over the next 18 months is speculative grade, as is just 5.6% of the debt maturing over the next five years.
  • This speculative-grade debt mostly consists of banks' subordinated debt (which is rated below the issuer credit rating), as well as the debt of speculative-grade nonbank financial institutions.

Chart 13

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Appendix

Table 1

Global Maturity Schedule
(Bil. $) 2022.2H 2023 2024 2025 2026 2027 Total
U.S.
Financials
Investment grade 79.1 200.7 250.6 254.1 244.4 198.9 1,227.9
Speculative grade 3.3 14.2 16.7 31.4 33.0 37.1 135.6
Nonfinancials
Investment grade 179.9 425.5 457.7 464.8 440.3 374.7 2,343.0
Speculative grade 41.3 146.2 290.7 408.4 436.9 376.8 1,700.3
Total U.S. 303.5 786.7 1,015.7 1,158.8 1,154.6 987.6 5,406.8
Europe
Financials
Investment grade 174.2 436.3 385.4 403.6 370.7 284.4 2,054.6
Speculative grade 9.8 9.7 14.1 14.3 15.6 9.6 73.1
Nonfinancials
Investment grade 119.2 257.0 298.6 277.2 249.4 224.4 1,425.8
Speculative grade 18.4 78.4 114.5 176.7 228.9 133.4 750.3
Total Europe 321.7 781.4 812.7 871.7 864.5 651.8 4,303.7
Rest of world
Financials
Investment grade 85.1 186.3 191.6 163.4 122.0 104.5 853.1
Speculative grade 8.3 10.0 10.6 13.0 3.3 4.4 49.6
Nonfinancials
Investment grade 58.7 144.3 138.3 121.6 125.6 103.1 691.6
Speculative grade 9.1 36.3 40.2 74.8 100.3 64.9 325.5
Total rest of world 161.3 376.9 380.8 372.9 351.2 276.9 1,919.9
Totals
Total investment grade 696.2 1,650.2 1,722.2 1,684.8 1,552.4 1,290.1 8,596.0
Total speculative grade 90.2 294.7 486.9 718.5 817.8 626.2 3,034.4
Total financials 359.7 857.3 869.0 879.9 789.0 639.0 4,393.8
Total nonfinancials 426.7 1,087.7 1,340.1 1,523.5 1,581.3 1,277.3 7,236.6
Grand total 786.4 1,945.0 2,209.2 2,403.4 2,370.2 1,916.3 11,630.4
Note: Data as of July 1, 2022. 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 July 1, 2022. Source: S&P Global Ratings Research.

Table 2

Global Maturity Schedule For Fixed- Versus Floating-Rate Corporate Debt
(Bil. $) 2022.2H 2023 2024 2025 2026 2027
Nonfinancials
Investment grade
Fixed 281.7 661.4 714.3 772.0 704.5 658.6
Floating 76.1 165.5 180.4 91.6 110.8 43.6
Speculative grade
Fixed 38.9 133.1 166.5 282.3 314.8 271.7
Floating 30.0 127.8 278.9 377.5 451.2 303.4
Financials
Investment grade
Fixed 255.2 598.2 591.2 599.2 543.2 419.2
Floating 83.2 225.2 236.3 222.0 193.9 168.6
Speculative grade
Fixed 19.1 24.3 29.2 36.4 28.5 19.8
Floating 2.3 9.6 12.3 22.2 23.4 31.2
Data as of July 1, 2022. Includes bonds, loans, and revolving credit facilities that are rated by S&P Global Ratings from financial and nonfinancial corporate issuers. Foreign currencies are converted to U.S. dollars at the exchange rate on July 01, 2022. Source: S&P Global Ratings Research.

Table 3

Global Maturity Schedule For Nonfinancial Sectors (Bil. $)
--Investment grade-- --Speculative grade--
Sector 2022.2H 2023 2024 2025 2026 2027 2022.2H 2023 2024 2025 2026 2027 Total
Aerospace and defense 1.3 17.5 11.3 18.4 17.2 12.4 0.3 4.0 16.0 21.1 22.1 19.3 160.8
Automotive 36.2 102.5 102.9 66.1 49.4 41.5 7.5 21.6 28.1 37.5 37.8 21.9 553.1
Capital goods 22.5 43.6 43.8 34.5 36.1 28.8 1.1 9.0 23.1 40.2 29.2 30.7 342.5
Consumer products 28.8 73.9 81.9 82.9 86.8 76.0 2.6 25.2 41.2 75.4 79.3 50.8 704.6
CP&ES 19.6 36.5 39.4 38.1 47.3 31.2 5.6 16.7 36.0 33.0 45.3 32.7 381.4
Diversified 1.0 1.4 2.6 1.2 2.1 0.7 0.0 0.5 1.4 0.0 0.0 0.0 10.9
Forest products and building materials 3.2 11.1 11.9 13.2 13.0 16.0 0.5 3.0 5.8 8.8 19.0 22.8 128.4
Health care 34.8 74.5 72.4 79.5 77.8 49.3 5.8 25.4 40.5 86.5 75.6 76.9 698.9
High technology 32.7 72.1 72.0 68.2 71.9 63.1 6.9 19.7 40.5 63.0 66.9 50.1 627.0
Homebuilders/real estate companies 16.2 37.6 50.6 54.9 55.0 50.2 4.3 8.9 9.9 15.3 9.3 8.5 320.7
Media and entertainment 12.7 22.3 45.6 37.9 51.4 20.0 7.9 36.3 82.9 99.0 140.7 97.5 654.2
Metals, mining, and steel 6.7 14.6 15.5 11.6 6.4 7.9 1.9 8.7 11.4 14.4 13.5 11.2 123.8
Oil and gas 19.8 64.4 71.5 66.1 54.9 48.7 3.1 17.2 19.6 36.4 42.1 21.8 465.6
Retail/restaurants 14.6 31.3 35.8 35.3 33.7 31.2 2.8 13.6 19.6 31.3 47.4 21.9 318.5
Telecommunications 22.8 48.9 64.6 84.0 61.5 72.1 12.5 24.9 37.7 53.5 77.6 70.4 630.5
Transportation 17.9 52.3 51.1 53.5 50.9 49.0 3.2 9.3 16.4 23.2 29.7 14.7 371.2
Utilities 67.0 122.3 121.7 118.2 99.7 104.2 3.0 17.1 15.4 21.3 30.6 24.0 744.5
Total 357.9 826.8 894.7 863.6 815.3 702.2 68.8 260.8 445.4 659.9 766.0 575.1 7,236.6
Note: Data as of July 1, 2022. 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 U.S. dollars at the exchange rate on July 1, 2022. CP&ES--Chemicals, packaging, and environmental services. Media and entertainment includes leisure. Source: S&P Global Ratings Research.

Table 4

Global Debt Amount By Rating
--Bil. $-- --% of total--
Rating category Financial Nonfinancial Total Financial Nonfinancial Total
AAA 689.2 100.1 789.4 3.1 0.4 3.5
AA 886.5 677.8 1,564.3 3.9 3.0 6.9
A 3,135.6 2,973.1 6,108.7 13.9 13.2 27.0
BBB 2,536.8 6,213.9 8,750.7 11.2 27.5 38.7
BB 519.1 2,047.9 2,567.0 2.3 9.1 11.4
B 164.8 2,222.3 2,387.1 0.7 9.8 10.6
CCC/below 25.4 405.2 430.5 0.1 1.8 1.9
Investment grade 7,248.1 9,964.9 17,213.0 32.1 44.1 76.2
Speculative grade 709.2 4,675.4 5,384.6 3.1 20.7 23.8
Total 7,957.3 14,640.3 22,597.6 35.2 64.8 100.0
Note: Includes bonds, notes, loans, and revolving credit facilities rated by S&P Global Ratings that were outstanding as of July 1, 2022. Includes instruments maturing after 2027. Foreign currencies are converted to U.S. dollars at the exchange rate on July 01, 2022. Source: S&P Global Ratings Research.

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 exchange rates on July 1, 2022.

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 expect the credit market will have already accommodated some of the debt remaining in this year, given normal data-reporting lags.

We aggregated the data by issue 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 the 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
Nick W Kraemer, FRM, New York + 1 (212) 438 1698;
nick.kraemer@spglobal.com
Credit Markets Research:Patrick Drury Byrne, Dublin (00353) 1 568 0605;
patrick.drurybyrne@spglobal.com
Research Contributor:Tanya Dias, CRISIL Global Analytical Center, an S&P affiliate, Mumbai

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