Fitch: Market Turmoil May Hit 2013-14 Leveraged Loan Maturities

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CHICAGO--(BUSINESS WIRE)-- Fitch Ratings sees the potential for periodic dislocation in leveraged loan and high-yield bond markets over the next year to erode refinancing capacity for deals maturing in 2013 and 2014.

We estimate that approximately $912 billion of leveraged loans will mature between 2012 and 2014, testing the market's depth at a time when global economic uncertainty will likely remain high. Should episodic bouts of market turmoil undermine investor confidence and risk appetite in 2012, particularly if the euro zone crisis intensifies, further extensions of 2013-2014 loan maturities could grind to a halt.

Applying a downside market volume scenario for 2012, we believe that a broad slowdown in credit market activity would have only a minimal effect on the refinancing or extension of loans maturing in 2012. However, market capacity to extend 2013 and 2014 maturities would likely be hit if capital market activity slows in a manner similar to that witnessed in third-quarter 2011.

Since 2009, strong capital market activity has fueled the extension or take out of approximately $325 billion of maturing debt in the leveraged market. Most of these maturities have been extended beyond 2015.

However, the near shutdown of leveraged market activity in the third quarter reversed some of the progress made toward narrowing the funding gap. Since August, loan refinancings, amend and extend transactions, and bond market take-out activity have all slowed, and a quick revival of the market may not occur in early 2012 if turmoil persists in the euro zone.

During the third quarter, only $48 billion in loans were extended beyond 2015, compared with $148 billion in the second quarter. Although loan market activity has picked up somewhat since October, leveraged market conditions are far from healthy, and the outlook for improved financing activity in 2012 depends greatly on near-term progress toward resolution of the European debt crisis.

For more information, please see the full report, "Bridging the Refinancing Cliff," dated Dec. 1, 2011 at www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

Applicable Criteria and Related Research:

Bridging The Refinance Cliff, Volume IV -- Downside Case

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=656496

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