–$30T Needed To Replace Maturing Debt; $13T-$16T To Finance Growth
–Estimates For 2012-2016 for the US, Euro Zone, China and Japan

By Yali N’Diaye

WASHINGTON (MNI) – Now that fixed-income portfolios are loaded with
corporate debt still widely perceived as a more favorable alternative
to developed country sovereigns, Standard & Poor’s is warning in a
report published Thursday of a potential $46 trillion corporate credit
storm.

The warning comes just as central banks and governments’ leeway to
prevent “serious problems” is diminished.

“We are warning of a potential ‘perfect storm’ in financial markets
in the next four years, resulting from the combination of massive debt
funding requirements of companies, ongoing bank deleveraging and
economic difficulties in the U.S. and euro zone,” the rating agency
said.

And if the storm indeed occurred, even the highest rated corporate
issuers would be affected.

Globally, Standard & Poor’s estimates companies’ refinancing needs
related to maturing bonds and loans issued prior the crisis and bonds is
$30 trillion. European companies account for 30% of it.

Still, “We believe that banks and capital markets should be able to
replace old debt,” Standard & Poor’s said.

More at risk is the funding needed to finance growth.

The report estimates that new funding to finance growth will be $13
trillion to $16 trillion, “but credit rationing may limit new bank
financing need to fund growth.”

Standard & Poor’s assumes a 12% nominal GDP growth in China over
the period dwarfing a 2% in Japan, 3% growth in the euro zone, and a 4%
growth in the UK and the U.S.

The study covers borrowing needs between 2012 and 2016 for the
U.S., the euro zone, the UK, China and Japan and excludes securitized
loans.

Of the $30 trillion needed to replace old debt, slightly more than
55% — or $17.2 trillion — is maturing in the U.S., the euro zone and
the UK.

Regarding new funding needs, “credit rationing could restrict
global loan growth in the future as new term bank financing becomes
difficult to secure,” the report said, directing its warning
particularly at Europe.

“While most of the economic and regulatory challenges facing the
banks are similar in both the U.S. and Europe, we believe that most of
them will have a more severe impact on lending capacity in Europe,” it
said.

In particular, “European banks have to adapt to a weaker economy
and uncertainties relating to sovereign debt sustainability while
managing more highly levered balance sheets.”

Overall, whether the storm will be avoided depends on “the
continued ability of banking system regulators to pilot a path through
the minefield that lies ahead,” said the report titled ‘The Credit
Overhang: Is A $46 Trillion Perfect Storm Brewing?’

** MNI Washington Bureau: 202-371-2121 **

[TOPICS: MR$$$$,M$U$$$,MAUDS$]