Bank of America Merril Lynch (NYSE: BAC) is predicting that a large amount of “junk” debt that is set to mature over the course of the next four years will significantly increase the risk of corporate defaults.
According to New York-based Bank of America analysts, Oleg Melentyev and Mike Cho, more than $600 billion worth of high-yield bonds and loans are due to be repaid between 2012 and 2014. In a note to their clients, Melentyev and Cho wrote that almost 90% of loans outstanding are set to mature in the next five years, compared with an average of 36% between 2005 and 2009.
The analysts said that “While the wall-shaped schedule of future maturities is nothing new for the high-yield issuer universe, it is more front-loaded today. This could result in additional default pressures further down the road as issuers deal with a higher concentration of maturities than they what they have been dealing with in the past.”
Banks have been hit by more than $1.7 trillion in losses and write-downs and are now much more reluctant to lend money to needy borrowers with credit ratings below Baaa3 by Moody’s and ratings of BBB- by Standards & Poor’s.
Maturities on debt are “a point of particular concern in our view, given that primary loan issuance remains challenged by declining bank lending,” the analysts said.
