Strong debt issuance, driven by continued low interest rates and accommodating credit markets, have pushed Canadian non-financial companies' five-year debt maturities to $81 billion, up 13% from a year ago, reports Moody's Investors Service.
"Speculative-grade bond and bank credit facilities maturities have increased by 25%, to $25 billion, while investment grade bond maturities have gone up 8% to $56 billion, in the past year," says Moody's vice president and senior credit officer, Kevin Cassidy. Cassidy notes that about two thirds of the new issuance is being used for general corporate purposes, with the rest used for refinancing.
The rating agency reports that investment-grade maturities are still expected to peak in 2014, when $16 billion of that debt comes due, but that speculative-grade maturities will now peak in 2017, at $9 billion. "The speculative-grade spike is similar to what has occurred in the US," Cassidy says, "where maturities are benign the first few years, but then also peak in 2017."
Moody's doesn't foresee a problem with refinancings. "Given the strong level of issuance in the past two years and our expectation that Canadian corporates' credit quality will remain stable in 2013, we expect that most companies will maintain access to the credit markets and will be able to refinance," says Moody's analyst and report co-author, Tiina Siilaberg.
Nonetheless, the rating agency says that risks remain. "Some spec-grade companies could have trouble refinancing at affordable rates if global macroeconomic events flare up again. Meanwhile, slower growth in China, recessionary conditions in Europe and elevated domestic household debt remain key risks for Canadian non-financial corporates," Cassidy says.
Canadian corporates' refunding needs remain concentrated in a few industries and companies, Moody's notes, with the energy, natural resources and chemicals sector accounting for 42% of upcoming five-year maturities, followed by the telecommunications, technology, media and utilities sectors.