Here are my Top 10 links from around the Internet at 10 past 2. I welcome your additions and comments below or please send suggestions for Thursday’s Top 10 at 10 to bernard.hickey@interest.co.nz Apologies for the delay.
1. Here comes the wall of debt – The New York Times has written a useful piece pointing out the US$700 billion wave of maturing junk bonds that is due to hit the market from 2012 just as the US governments and others are borrowing heavily. We can be sure of one thing: interest rates will rise.
2012 also is the beginning of a three-year period in which more than US$700 billion in risky, high-yield corporate debt begins to come due, an extraordinary surge that some analysts fear could overload the debt markets.
With huge bills about to hit corporations and the federal government around the same time, the worry is that some companies will have trouble getting new loans, spurring defaults and a wave of bankruptcies.
The United States government alone will need to borrow nearly US$2 trillion in 2012, to bridge the projected budget deficit for that year and to refinance existing debt.
Indeed, worries about the growth of national, or sovereign, debt prompted Moody’s Investors Service to warn on Monday that the United States and other Western nations were moving “substantially” closer to losing their top-notch Aaa credit ratings.
Sovereign debt aside, the approaching scramble for corporate financing could strain the broader economy as jobs are cut, consumer spending is scaled back and credit is tightened for both consumers and businesses.
Even Moody’s is worried.
“An avalanche is brewing in 2012 and beyond if companies don’t get out in front of this,” said Kevin Cassidy, a senior credit officer at Moody’s.
Private equity firms and many nonfinancial companies were able to borrow on easy terms until the credit crisis hit in 2007, but not until 2012 does the long-delayed reckoning begin for a series of leveraged buyouts and other deals that preceded the crisis.
That is because the record number of bonds and loans that were issued to finance those transactions typically come due in five to seven years, said Diane Vazza, head of global fixed-income research at Standard & Poor’s.
In addition, she said, many companies whose debt matured in 2009 and 2010 have been able to extend their loans, but the extra breathing room is only adding to the bill for 2012 and after.
The result is a potential financial doomsday, or what bond analysts call a maturity wall. From $21 billion due this year, junk bonds are set to mature at a rate of $155 billion in 2012, $212 billion in 2013 and $338 billion in 2014.
2. Tax crackdown – Australian authorities are cracking down on rich individuals with money tucked in other countries, Anthony Klan at The Australian reports. Any with money stuck here? This is all part of the global crackdown on tax havens by cash-strapped governments. This will be a theme of years to come.
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