S&P warns of $3.9trn European refinancing challenge

The rating agency raised concerns about the ability of European lenders to meet corporate funding needs as they deal with the impact of sluggish economic growth.  

 European companies could face serious challenges refinancing maturing debt over the next few years as the region’s economy weakens and sovereign challenges remain a key concern for investors, according to a new report from Standard & Poor’s.

The rating agency predicted that most of the maturing debt will come from high-rated companies, which tempers the overall funding risk. S&P’s expects approximately $3.9 trillion of European corporate debt to mature between April 2013 and year-end 2017, the firm said in the report.

S&P’s believes that normal data reporting lags will mean the credit market has accommodated for a significant portion of the “$737 billion is scheduled to mature during the last three quarters of 2013,” argued Diane Vazza, head of Standard & Poor’s global fixed income research.

“Of the nearly $3.9 trillion in maturing debt, financial companies account for two-thirds ($2.6 trillion), and more than 85 percent ($3.4 trillion) is investment grade (rated 'BBB-' and higher),” added Vazza.

The report chimes with a view that as banks deleverage, companies in Europe will over the next few years increasingly turn to capital markets or alternative debt providers to meet their funding requirements.

The annual scheduled maturities will increase to $982 billion in 2014 and $820 billion in 2015 before declining to $725 billion in 2016 and $676 billion in 2017, according to the report.

Vazza believes the continued uncertainty in the region, which stems from its “weak economy and sovereign challenges,” remains a concern for investors and could impede financing and refinancing prospects in the coming quarters.

The report warned that the reliance on traditional bank lending from European corporates could hinder refinancing prospects if lending becomes more expensive and scarce.

“Moreover, financial companies in Europe continue to face headwinds that not only complicate their capital raising efforts but also hinder banks from lending more freely to other companies,” she added.