May 10 - Standard & Poor's Ratings Services estimates the funding needs of nonfinancial
corporations in the eurozone, U.K., U.S., China, and Japan at $43 trillion to $46 trillion over
the next five years. This includes $30 trillion of debt that will require refinancing and $13
trillion to $16 trillion of new money needed to spur growth, according to a report that the
credit rating agency published earlier today.
"This global wall of nonfinancial corporate debt will potentially compound the credit
rationing that may occur as banks seek to restructure their balance sheets, and bond and equity
investors reassess their risk-return thresholds," noted Jayan Dhru, senior managing director of
Global Corporate Ratings at Standard & Poor's. "Combined with the eurozone crisis, the slow U.S.
economic recovery, and the prospect of a slowing economy in China, this raises the downside risk
of a perfect storm in global corporate credit markets."
The report says that Standard & Poor's working assumption is that global banks and debt
capital markets will largely be able to continue to provide the majority of liquidity to allow
most corporate issuers to proactively manage their forthcoming refinancings, though the downside
risk remains and the balance is very fragile. (Listen to the related webcast "The Credit
Overhang: Is A $46 Trillion Perfect Storm Brewing?," dated May 10, 2012.)
"Existing or new sensitivities could flare up and derail our base case," said Mr. Dhru.
"Governments and central banks have less fiscal and monetary flexibility to prevent serious
problems emanating from future market disturbances. A perfect storm scenario would likely cause
financing disruptions even for borrowers that are not highly leveraged."
The report, "Is A $46 Trillion Perfect Storm Brewing?," is the first in a series of articles
titled "The Credit Overhang," which will comment on the competing forces that can potentially
influence corporate credit quality and alter the fragile equilibrium that currently exists in
the global corporate credit landscape.