By Katrina Nicholas
April 14, 2010 (Correct)
SourceApril 14 (Bloomberg) -- Companies in the U.S. will struggle to refinance a $2 trillion “wall of debt” maturing over the next five years as banks grapple with lending restrictions of their own, according to Standard & Poor’s.
“Most of this debt was issued during the period of 2004 to 2007 when the bank and high-yield bond markets were very robust,” John Bilardello, S&P’s global head of corporate sector ratings, said on a teleconference call from New York. “There’s a serious question over whether the securitization market will come back and whether banks will be able to lend to the extent they did several years ago.”
U.S. banks, still reeling from $1.15 trillion of writedowns and losses, are being forced to shrink their balance sheets and increase the capital they must set aside to offset the risk of losses in an attempt to avoid a repeat of the global financial crisis. The Basel Committee on Banking Supervision proposed changes in December that would require lenders to increase the amount of equity and retained earnings they hold by 2012.
“Although corporate borrowers enter 2010 in a more stable environment, a smooth, swift rebound is unlikely,” Bilardello said. “U.S. borrowers can expect a year of mixed advances and setbacks as continued unemployment offsets some bright spots on the macroeconomic front.”
Financial institutions in Asia, which lost $41 billion, have emerged from the credit crisis more able to refinance companies in the region, Bilardello said. While the so-called Basel II international capital rules apply to banks globally, Asian banks’ historic propensity to lend more prudently and invest in less risky asset classes means they will cope better in coming years, he said.
Refinancing Risk
Companies in Asia rated by S&P have $600 billion of debt coming due in the next three years, according to the ratings agency’s estimates.
The media, consumer, airline and automobile industries are among those expected to fare worst in terms of downgrade and refinancing risk in 2010, Bilardello said.
Banks will “undergo the most radical structural change since the Great Depression” this year, said Jayan Dhru, the risk assessor’s New York-based global head of financial institutions ratings.
“We expect to see some downgrades of financial institutions this year, with potential for a more stable environment by end of 2010,” Dhru said. The greatest changes will come in the form of increased regulation, supervision and enforcement, and industry consolidation, he said.
S&P registered more than 300 corporate defaults from 2007 to 2009, most in the U.S., and downgraded more than 40 percent of the companies it rates.
To contact the reporter on this story: Katrina Nicholas in Singapore at
knicholas2@bloomberg.netLast Updated: April 14, 2010 20:18 EDT