High-Grade Bond Refinancing Risk Rises With $1.3 Trillion Due, Moody’s Says

Blue-chip companies’ refinancing risks have climbed to a 13-year high as near-term maturities close in amid the higher-for-longer interest rate outlook, according to Moody’s Investors Service.

(Bloomberg) — Blue-chip companies’ refinancing risks have climbed to a 13-year high as near-term maturities close in amid the higher-for-longer interest rate outlook, according to Moody’s Investors Service.

“Maturities within our five-year scope rose amid higher issuance and shifted earlier in that window, with companies opting for shorter tenors and high rates dissuading refinancing,” credit analysts including Ignacio Rasero said in a note. Nearly $1.3 trillion of notes from blue-chip firms are coming due between 2024 and 2028, according to the note.

The share of maturities within the first three years of Moody’s five-year scope increased to 61% compared with 58% last year, pushing refinancing risk earlier. Companies seeking to refinance will continue to face higher funding burdens as stubborn inflation is keeping benchmark rates elevated, according to Moody’s.

“Average investment-grade rates as of September are up 183 basis points against a 10-year rolling average,” Rasero wrote. “Still, we expect investment-grade companies to maintain good bond market access and have sufficient cash flow to absorb higher interest costs.”

Spreads for high-grade credit are only about one basis point wider than the 2022 average, reflecting an improvement in economic sentiment. Additionally, spreads are 10 basis points tighter for Baa3-rated companies, the riskiest blue-chip borrowers.

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