Moody's: US spec-grade refunding risk eases as issuance grows to meet record high maturities

Moody's Three-Year Refunding Index showed signs of stabilizing as a record level of high yield bond maturities in April was offset by a substantial increase in issuance, Moody's Investors Service says in its latest edition of the Refunding Risk Quarterly. The index indicates the market's ability to absorb the speculative-grade bonds maturing over the next 12 and 36 months given the current pace of speculative-grade bond issuance.

"In April, three-year high-yield bond maturities climbed 7% to $158 billion from a year ago, the highest level we have observed in a decade of Refunding Index data," says Tiina Siilaberg, Moody's VP -- Senior Analyst. "So far in 2017, the growth in maturities is being met by growth in issuance, despite elevated longer-term risks."

Moody's Three-Year Refunding Index improved 4% over last March and 5% over last April, its first year-over-year improvement since August 2014. This development was largely driven by companies selling $68 billion of high yield bond in the first four months of 2017, a 44% increase over the previous year, with $32 billion sold in March alone.

Still, refinancing risk remains high compared to historical levels, reading 3.4x at the end of April, 40% below its long-term average of 6.4x, notes Siilaberg. Additionally, the One-Year Refunding Index continued its decline, finishing April at 6.9x, 42% below its long-term average of 11.9, due to the fast increase in maturities entering the one-year window without issuers actively refinancing these obligations.

Among highly leveraged companies -- those with debt to EBITDA greater than 6x -- the Telecom/Media/Technology sector continues to account for the largest share of upcoming debt maturities, with $66 billion, or 23% of the total, down from 26% last quarter. The Retail & Apparel industry's share grew the most, to $29 billion, or 10% of the total, up from 7%. The Healthcare sector has $50 billion due in the highly leveraged space, or 17% of the total, although $20 billion of that is the obligation of just two companies.