The refinancing burden of unrated European leveraged buyouts (LBOs) remains challenging, says Moody's investors Service in a new Special Comment published today showing that 254 companies face EUR 133 billion in LBO-related debt maturing through 2015. At least a quarter of these companies could default with the figure doubling if external factors close the high-yield market for extended periods.
The new report, entitled "Unrated European LBOs Remain Under Pressure from Refinancing Burden," is now available on www.moodys.com. Moody's subscribers can access this report via the link provided at the end of this press release.
"Over half the debt maturing through 2015 is concentrated in 36 companies, each of which has over €1 billion of debt, says Chetan Modi, Head of Moody's European leveraged finance and author of the report. "While this debt is broadly dispersed across industries, there is a concentration of debt to be refinanced in 2014."
The results of Moody's study are consistent with the rating agency's previous analyses, but these companies are now one year closer to the 2014-15 refinancing peak. This refinancing peak remains worrisome, given the weak macroeconomic environment and the generally low credit quality of this debt.
In the report, Moody's notes that the key factors determining the type of refinancing method companies choose will be the amount of debt and its credit quality. Many larger companies will seek to refinance with high-yield bonds, however they will need to be sufficiently creditworthy to achieve this.
The openness of both European and US high-yield markets will largely determine how this refinancing burden is navigated. Market access will remain in "windows", and Moody's expects new-issuer pricing to remain expensive.
Moody's anticipates that more companies will attempt to amend-and-extend (A&E) loans in 2012. Lending options for European collateralised loan obligations (CLOs), including for A&Es, will become increasingly constrained, particularly from 2013, as their reinvestment periods end. This restriction will precipitate more fundamental debt restructurings for weaker credits.