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Europe faces $2 trln debt refinancing challenge - S&P

  Some $2.1 trillion of European company and bank debt matures in the next three years, raising “substantial refinancing risk”, Standard & Poor’s said on Tuesday.


With new bond issues at a virtual standstill after the bankruptcy of Lehman Brothers, fears have intensified that companies will be unable to raise fresh debt to pay off maturing bonds, potentially pushing them into default. “Funding pressures in Europe have escalated sharply since September as stress in the global financial system accelerated,” S&P analysts said in a note. “Given the soaring cost of capital the sizeable pipeline of debt coming due suggests substantial refinancing risk.”

The credit-ratings agency said euro-denominated senior bank debt was being offered at spreads near 225 basis points over swaps, almost 10 times wider than levels before August 2007. The financial sector makes up 72% of maturing debt over the next three years rated by S&P -- but recent government rescue packages should help mitigate those refinancing pressures, S&P said.

Just in the remainder of 2008, $206 billion of European debt will mature, including $181 billion in the financial sector. Within non-financials, capital-intensive sectors such as telecommunications and utilities have around $113 billion and $79 billion worth of debt respectively due to mature in 2009 through to the end of 2011, S&P said.

In the Q4, those sectors face an additional $8.6 and $4.1 billion respectively of maturing debt. Other sectors with the heaviest redemption profiles include healthcare at $48 billion; metals, mining and steel at $32 billion; and transportation at $28 billion. “The vast majority of debt (90%) maturing in Europe is investment grade, which traditionally would temper refunding risk, but poses greater challenges than normal in the current environment,” S&P said.

The biggest refunding risks come in 2009, when $801 billion of debt matures, split between $576.8 billion of financial debt and $172.6 billion of non-financial debt, the vast majority of which is investment-grade. Another $51.6 billion of debt matures in 2009 that is not rated by S&P.



Germany has the most maturing financial debt in 2009 to 2011 at 40% of the total, largely due to its exceptionally large covered bond market. Covered bonds are backed by assets that remain on the borrower’s balance sheet and are therefore perceived as less risky. But even this market has suffered in the deepening credit crisis with scant new issues and wider spreads.

After Germany, Sweden, the Netherlands, France, Italy, Spain and the United Kingdom have the most financial debt maturing. Together, they account for about 85% of total financial exposure in Europe, S&P said. For non-financial debt maturing in 2009 to 2011, France is most exposed at 26%, followed by the United Kingdom, Germany, the Netherlands and Italy. The five make up about 80% of total exposure.


Following is a table, based on data from S&P as at Oct. 22, on bond refinancings due in Europe from now until end-2011. Debt maturing in Europe, $ billions

Forth quarter 2008 2009 2010 2011

Financials Investment grade 152.2 573 436.9 329.8

Speculative grade 2.5 3.8 1.7 2.6

Non-financials Investment grade 32.7 152.9 132.1 128.5

Speculative grade 9.6 19.7 14.7 18.8

Total investment grade 184.9 725.9 569 458.4

Total speculative grade 12.1 23.4 16.4 21.4

Total not rated 8.6 51.6 47.7 30.1

Total 205.6 801 633.1 509.9