Thursday, June 25, 2009

The Leveraged Loan "Wall of Worry"

by Bill McBride on 6/25/2009 11:51:00 PM

From the WSJ: Rates Low, Firms Race to Refinance Their Debts

[C]ompanies are seeking to sidestep what is likely to be the biggest-ever wave of loan refinancing among risky companies as $440 billion in debt comes due in a span of three years [from 2012 to 2014]. That is about 85% of the $518 billion in current leveraged loans outstanding ...

Some firms [are negotiating extensions]. Others are issuing junk bonds or stock, using the cash raised to repay some of their loans well ahead of schedule.

The pre-emptive moves demonstrate rising concern about the massive bubble of lending that developed from 2005 to 2007.
The looming credit problems are not just Option ARMs and CRE loans; there are about $75 billion in leveraged coming due in 2012, another $150 billion in 2013 and close to $215 billion in 2014.

The credit bubble: the gift that keeps on giving.