Tags: goldman sachs | junk | bonds | investors

Goldman Sachs: Here's Why All Those Junk-Rated Bonds Will Be Fine

Tuesday, 30 June 2015 10:48 AM

The escalating Greek crisis. The looming Federal Reserve interest rate hike. The potential closure of U.S. capital markets. None of these are enough to threaten junk-rated companies, according to analysts at Goldman Sachs.

The near-zero interest rate environment that has remained in place since the collapse of Lehman Brothers has allowed junk-rated corporate borrowers to tap the market repeatedly; selling more bonds at a cheaper financing cost and pushing out their borrowings.

That means companies with relatively weaker balance sheets have a buffer even if external shocks were to threaten their access to capital markets, Goldman analysts Bridget Bartlett and Spencer Rogers said in a report today. They estimate that 75 percent, or $606bn, of the high-yield bonds sold over the past three years have been used to refinance at cheaper levels, leaving companies in much better shape when it comes to their debt profiles.

You can see the trend in the below chart, which shows the shift in the "maturity wall," or the amount of debt that companies will have to pay back or refinance in the coming years.

By Goldman's estimates, the five-year maturity wall has been extended by three years. That means that back in 2012, 63 percent of high-yield debt was coming due in the five years between 2016 and 2020. Now, 64 percent of debt outstanding is set to mature starting three years later, from 2019 to 2023, Goldman says.

In essence, the maturity wall has been stretched further down the road, even as the absolute amount of high-yield debt outstanding has increased as those record low borrowing costs and yield-hungry investors encouraged companies to tap the market repeatedly.

As the Goldman analysts put it:

On a notional basis, the near-term debt burden today has doubled over the past three years from $8.5bn due in ≤ 1y in 2012 to $16.3bn coming due in ≤ 1y today. However, this expansion is symptomatic of the substantial growth of the high- yield market overall, which has risen sharply from $0.92trn in 2012 to $1.45trn today.

Still though, Goldman analysts think that all that refinancing means high-yield companies are in good shape to weather almost any upcoming storm except one in particular. Here's what they say: "Barring a recession scenario, this should help mitigate default risk in the high yield market."

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The escalating Greek crisis. The looming Federal Reserve interest rate hike. The potential closure of U.S. capital markets.
goldman sachs, junk, bonds, investors
Tuesday, 30 June 2015 10:48 AM
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