Moody’s Sees Elevated Investment Grade Refunding Risk
Refunding risk for the $300 billion of investment-grade non-financial corporate bonds that will mature during the next three years is elevated at a time of tight credit markets and weak economic conditions, according to a new study from Moody’s Investors Service.
The study of 330 investment-grade non-financial corporate issuers in the U.S. with debt maturing between 2009 and 2011 indicates that credit ratings have migrated downward during the last year. About $100 billion of the $300 billion of maturing debt is rated Baa2 or Baa3, the lowest investment-grade ratings. Of the $10 billion of Baa3-rated bonds maturing in 2009, 28% have either a negative outlook or are under review for a possible ratings downgrade.
The broad financial crisis is elevating refunding risk for most companies. However, many investment-grade issuers are benefiting from investors’ relative confidence in companies with higher credit quality, reduced appetite for other forms of investment and need to continue deploying capital. This is reflected in a more than 150% increase in investment-grade non-financial corporate bond issuance during the first two months of 2009 versus the same period in 2008.
Investment-grade issuers have an advantage in these tight credit markets. But considering current conditions, we still consider refunding risk as relatively high for the $99 billion of maturities in 2009.
Moody’s study is its first to examine the refunding risk and needs of investment-grade issuers. The study includes a listing of all debt maturities and putable obligations for U.S. non-financial companies during the next three year.
The full report, Refunding Risk and Needs for U.S. Investment-Grade Corporate Bond Issuers, 2009-2011, is available for purchase.
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