Moody's reports lower refunding needs but higher risk for U.S. junk-grade corporate debt

By Angela McDaniels

Seattle, Feb. 14 - Moody's Investors Service said that while the amount of speculative-grade U.S. corporate debt to be refunded over the next three years is less than it was a year ago, the refunding risk for bonds appears to be slightly higher and the average credit quality of the bonds to be refunded is lower.

The total amount of speculative-grade corporate bonds and credit facilities maturing in 2007-2009 rated by Moody's is about $82 billion, including $48 billion of bonds and $34 billion of credit facilities.

These amounts show a modest decline from the totals for the 2006-2008 period, when $91 billion of debt, including $62 billion of bonds and $29 billion of credit facilities, was to be refunded.

"The reduction can be attributed to the substantial amount of liquidity in the U.S. high-yield markets," Moody's senior vice president Kendra Smith said in an agency report.

"Receptivity for new corporate issuances is being fueled by a significant amount of leveraged buyouts, tight credit spreads, a favorable interest rate environment and low corporate default rates for speculative-grade issuers.

"These market trends are expected to continue to remain robust throughout 2007. The rapid pace of mergers and acquisitions already announced during the fourth quarter of 2006 and into the first quarter of 2007 supports this assertion."

Refunding risk for U.S. bonds and credit facilities rated by Moody's has increased for speculative-grade bonds, the agency said, as 61% of the bonds that face refunding in the next three years have a B1 rating or below, compared with 56% three years ago.

The refunding risk for the speculative-grade bank debt, however, is fairly low, with 73% of the bank debt maturing during 2007-2009 rated Ba3 or higher.

The agency noted that bank loans make up a greater percentage of the total debt to be refunded: Bank loans now make up 41% of the debt to be refinanced over the next three years, compared with 32% a year ago.

In total, issuers rated by Moody's have $17 billion in bond and bank debt coming due in 2007, $24 billion in 2008 and $41 billion in 2009.

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