Bank of America Predicts Increased Risk of Corporate Defaults on Bonds (NYSE: BAC)

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.”

The large percentage of payments which are coming due comes from a shift by companies to transitioning their debt to shorter maturities to between three and five years, compared with maturities between five and seven years that were common in the past, they said.

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.