KUHN CAPITAL Monday, October 23, 2017
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Get Your Debt House in Order

3/16/10

If you’re carrying a pretty heavy debt load maturing in the next few years, you may want to get out in front of the coming credit squeeze now.

Since the 2007 meltdown and subsequent recession, we’ve been warning readers about the rising “wall” of maturing debt expected to hit the US starting in 2012 and extending through 2014.

Of course, our government is here to help. Its spending sprees will drive borrowings of $2 trillion starting in 2012, with another $1.4 trillion in the following two years. Given continuing lackluster economic performance and no sign of contrition from the profligate politicians, Moody’s recently became the most visible member of a growing cadre of analysts concerned about the need to downgrade the country’s credit rating. Should that come to pass, it will further raise interest rates and therefore taxpayer costs, another drag on economic recovery.

Adding to the sky-high demand for credit in 2012 – 2014 are the $155 billion in corporate junk bonds maturing in 2012, rising to $212 billion in 2013 and $338 billion in 2014. This credit was generated by large private equity groups like Bain Capital and KKR using, in some cases, leverage ratios eight or more times annual earnings. After purchasing their acquisitions, a number of such firms sucked out more cash via dividends, further weakening their targets’ balance sheets.

Companies with investment grade credit will be also entering the market starting in 2012 looking for $526 billion in 2012 and another $638 billion during the period 2013 – 2014. Finally, commercial mortgage-backed securities will start rolling over in 2012 at the tune of about $60 billion per year.

Bottom line: 2012 will see borrowers looking for $2.75 trillion in new money, an unprecedented sum. Assuming the credit is available, interest rates will almost certainly rise, coupled with much tougher terms. So today’s prudent mid-market CFO’s will want to avoid getting swept into this stampede by shopping now for debt that extends beyond 2014. We can help.


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