$9.6 Trillion In Rated Corporate Debt Is Scheduled To Mature Globally Through Year-End 2021

S&P Global Fixed Income Research estimates that $9.6 trillion in rated corporate debt is set to mature globally through 2021.

Following several years of favorable credit conditions after the Great Recession, funding conditions tightened considerably in the first part of 2016 as falling commodity prices and volatile equity markets, particularly in China,
contributed to investor unease and a flight to quality. However, as oil and gas prices stabilized and as China launched an aggressive growth strategy, the credit markets recovered in the latter part of the year, with yields falling and issuance rebounding.
Less than a quarter of the corporate debt maturing through 2021 is speculative grade (rated ‘BB+’ and lower). Should lenders become more risk averse, we consider this lower-quality debt to be more susceptible to refinancing risk than investment-grade debt. This risk could either come from a limited availability of funding or higher interest rates.
Despite this risk to lower-rated credit, we expect that current credit conditions and issuance levels should be sufficient for companies to manage global corporate rated debt maturities in the aggregate through 2021.

Dollar Strength Partially Offset A Rise In Debt In The Past Year
The $9.59 trillion in rated corporate debt set to mature globally over the next five years marks a 1% increase from our study last year and an 8% increase from our study two years ago (see chart 1). One notable change that has limited the growth of debt relative to our prior studies is the strength of the U.S. dollar in recent months. If exchange rates were held constant at their Dec. 31, 2015, levels, then the amount of global corporate debt maturing over the next five years would have increased by 2.2% since last year. Another notable change is that the current refinancing estimate includes rated debt from the real estate investment trust (REIT) sector, which we did not include in prior years’ studies. Rated corporate debt maturing through 2021 (excluding REITS) would total $9.47 trillion, marking a decrease of 0.4% from last year’s study, or an increase of 6.7% since our study two years ago.
In our current estimate, we expect $1.8 trillion in rated corporate debt to mature in 2017. As we expected, the amount set to mature in 2017 has declined in recent years as companies, particularly nonfinancials, have taken considerable steps to pay down or prefinance this maturing debt. The amount scheduled to mature in 2017 is down 7% from our year-ago estimate and down 5% from our 2017 estimate two years ago. Of the debt currently set to mature in 2017, $784.3 billion is from nonfinancial corporates, and these 2017 maturities have declined by 18% since last year.
Financials have $1.02 trillion set to mature in 2017, and this amount has increased by 4% since last year as much of the increase stems from medium-term notes issuance by financial institutions in 2016 that is set to mature this year.
The amount of speculative-grade nonfinancial debt maturing in 2017 has declined by 53% since last year’s study, while the amount of debt maturing through 2021 has declined by 9% (see chart 2). Through a combination of refinancings, prefinancings, paydowns, and restructurings, speculative-grade nonfinancial companies have lowered the amount of debt set to mature over the next five years. Additionally, defaults rose in 2016, particularly among oil and gas, and metals, mining, and steel companies–these defaults also contributed to the reduction in speculative-grade debt, as nearly $240 billion in debt was affected by these defaults.

The Majority Of Rated Debt Maturing Through 2021 Is Investment Grade
Nonfinancial issuers account for the majority of rated debt that is scheduled to mature through 2021, with $5.66 trillion of the $9.6 trillion total, while financials account for 41% of the total. Of debt maturing through 2021, 77% ($7.42 trillion) is rated investment grade. This investment-grade debt is nearly evenly split between nonfinancial issuers (50.3%) and financials (49.7%). Speculative-grade debt totals $2.18 trillion maturing through 2021, 89% of which is from nonfinancials.
By rating category, the largest portion of the maturing debt is in the ‘BBB’ category ($2.99 trillion), followed by the ‘A’ category with $2.67 trillion (see chart 3). The largest rating category for financials is ‘A’ (with $1.46 trillion), while the largest category for nonfinancials is ‘BBB’ (with $2.04 trillion).

Less than one-quarter ($2.18 trillion) of the corporate debt maturing through 2021 is rated speculative grade. Generally, we consider speculative-grade debt to have higher refinancing risk, especially at the lower rating levels.
Speculative-grade companies generally have weaker credit measures, less financial flexibility, and fewer sources of funding than investment-grade companies. However, the maturity profile of global speculative-grade debt has been relatively stable in recent years. Maturities for speculative-grade debt should rise to a peak of $675.9 billion in 2021 from a moderate $165.8 billion in 2017.
By rating category, the largest share of speculative-grade debt maturing through 2021 is in the ‘BB’ category, with $1.1 trillion. In contrast, the share of higher-risk credit that is rated ‘B-‘ and below accounts for just $433.7 billion, and just 43% of this is set to mature before 2020.

Developed Markets Account For 93% Of The Maturing Debt
By region, companies in the U.S. account for the largest share of the total, with $4.2 trillion maturing through 2021, or 44% of the global total. Europe follows with $3.68 trillion, or 38% of the global total, while the other developed region (Australia, Canada, Japan, and New Zealand) accounts for 11%, and the emerging markets are 7%. The U.S. has a notably higher share of speculative-grade debt than Europe and the other developed regions, partly because of structural differences among the regions’ markets for corporate funding.
Of the debt maturing through 2021, 59% (or $5.66 trillion) is from nonfinancial issuers, the vast majority of which is from companies in the U.S. and Europe. U.S. issuers account for 55% of nonfinancial debt, followed by those from Europe with 30%. Of the total nonfinancial debt, 66% is rated investment grade. The share of nonfinancial corporate issuance in the U.S. that is unrated is lower than that of the other regions. A higher portion of European nonfinancial entities are unrated and receive private funding, such as directly from financial institutions. In the emerging markets, we often see a majority of new issuance that is unrated. In this study, we estimate the maturities only for debt that is currently rated by S&P Global Ratings. Debt that is unrated may also present additional refinancing challenges.
Financial companies comprise 41% (with $3.94 trillion) of the debt maturing through 2021. European issuers account for half of this debt, followed by U.S. issuers (with 28%). Financials have their largest amount of debt maturing this year, as just over $1 trillion is set to mature. About half of the financial debt maturing in 2017 is from European entities, and the largest share of this debt is five-year notes that were issued in during the European sovereign debt crisis in 2012. After 2017, the annual debt maturities for financial entities begin to subside, falling to $875 billion in 2018 and $792 billion in 2019.

Among Nonfinancial Sectors, Consumer Products, Telecommunications, And Utilities Have The Largest Amounts Of Debt Maturing
Nonfinancial sectors with the largest amounts of debt scheduled to mature through 2021 are consumer products, telecommunications, and utilities. The consumer products sector has $585.7 billion set to mature through 2021, 73% of which is investment grade. In comparison, the telecommunications sector has $522.2 billion (65% investment grade), and the utility sector has $493.2 billion (77% investment grade) (see table 2).
Meanwhile, maturities for the oil and gas sectors (integrated and exploration and production) are among those watched most closely by investors as commodity-price volatility contributed to the credit weakness in the oil and gas sector in 2016, and this sector experienced the most downgrades and defaults. We estimate that the integrated oil and gas sector has $251 billion in rated debt scheduled to mature through 2021 (47% of the total amount of rated debt in this sector), and the oil and gas exploration and production (E&P) sector has $417.3 billion maturing through 2021 (53% of the total amount of rated for this sector). Speculative-grade E&P maturities should be moderate this year and next (at $14 billion and $19 billion, respectively), before rising substantially to $52 billion in 2019. The increase in oil and gas debt maturing in 2019 is from all rating categories. For integrated oil and gas, the largest share of the debt is for issuers in Europe (46%) and Latin America (23%). For E&P, the highest share of the debt is from the U.S. (49%), followed by Europe (35%). Of all the outstanding rated debt instruments from these two sectors, the median maturity is 5.9 years for integrated oil and gas and 4.9 years for E&P.
Financial services companies, including banks, financial institutions, and insurance companies, account for $3.9 trillion of the debt maturing through 2021. By country, U.S. financial companies have the most debt coming due, at $1.08 trillion, followed by Germany ($288 billion) and the U.K. ($280 billion) (see chart 4).
Since the Brexit vote, the pound depreciated relative to the dollar, and the value of U.K. debt has declined in dollar terms. Financial companies from the U.K. have $280 billion in rated debt that is scheduled to mature through 2021 (56% of the total amount of rated debt for this sector). About 78% of U.K. financial and nonfinancial debt is denominated in either U.S. dollars or euro and could become more expensive to refinance should the British pound continue to depreciate.
We Expect Global Corporate Bond Issuance To Grow Modestly In 2017
After a slow start in 2016, global rated corporate bond issuance rebounded to $2.47 trillion for the full year, a total that was 2.6% higher than the prior year. Nonfinancial corporate bond issuance was down by 1.6%, as demand fell for speculative-grade credit. However, this drop in nonfinancial issuance was offset by a 6.9% increase by financials, as many financials prepared for higher capital requirements, particularly in the U.S. If global issuance remains at this level, the volume is more than sufficient to supply funding for companies to meet pending debt maturities. However, with uncertainties looming on several fronts, including the potential for higher-than-expected interest-rate increases, currency volatility, and geopolitical risks, companies could face rising funding costs, which could dampen credit quality, or present refinancing challenges (see chart 5).

Despite the headwinds that issuance could face, with the uncertainty currently in the market, credit conditions could also be better than expected. U.S. corporate debt could experience a boost in demand if a modest increase in interest rates and dollar strength attracts renewed inflows from international lenders. We expect the European Central Bank to renew its program of quantitative easing at the end of the first quarter, which could further spur demand for corporate debt. Additionally, after OPEC’s agreement in December, the oil and gas market should see some increased stability, which should help to relieve some of the credit stress that the commodity-related sectors have experienced over the past year.
We expect global nonfinancial corporate issuance to increase by 2%-6% overall in 2017 from 2016. Demand for U.S. corporate credit should remain strong, with rising interest rates and a strengthening dollar. In the U.S., the Trump administration could pursue a tax policy that disincentivizes debt, which could lead to lower debt in issuance in 2017–or could accelerate issuance if companies move to get ahead of policy changes. This potential slowdown in U.S. issuance would likely be offset by an increase in new Chinese issuance volume, as the country continues to pursue aggressive GDP growth. For financials, we expect issuance to grow by 1.5%-4% in 2017, led by emerging market issuance, primarily from China. In Europe, issuance may lag given current, and expected, currency depreciation, and the U.K.’s planned triggering of “hard” Brexit proceedings.