Today's Article
Corporate debt
accumulated during
the George W. Bush
years of eased
regulation may create
a second economic
crash by 2013.
accumulated during
the George W. Bush
years of eased
regulation may create
a second economic
crash by 2013.
The American Spark
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Corporate Debt May Again Crash Market By 2013
By Cliff Montgomery - Feb. 22nd, 2010
Corporate Debt accumulated during the George W. Bush years of eased regulation may create a second
economic crash by 2013, according to DailyFinance, a financial Internet magazine.
"Wall Street's love of leverage is threatening to turn around and bite it in the assets," states an article
published by DailyFinance this January, "as many companies find their issuance of debt could potentially
become their undoing."
Here's the deal: For all the talk about the 'end of the Great Recession'--at least for bailed-out Wall Street
millionaires--there is still a gargantuan amount of debt on corporate books.
Big Business primarily stacked up this debt from 2003 to 2007. The massive debts will come due by 2013 or
2014 at the latest.
Companies already are hurting from the Wall Street meltdown of 2008, which itself was brought on by a
combination of corporate greed, unregulated gambling and a lack of serious investment.
The inability of Big Business to refinance its remaining liabilities will force it to pay a high rate of interest on its
debt. This can only whittle away corporate earnings and force a number of companies into bankruptcy.
How far-reaching is this ticking time bomb?
Standard & Poor (S&P) judges that at least 807 speculative grade issues were created in America from 2006
through 2009.
"While only 82 (11%) of those bonds have defaulted," stated DailyFinance, "an alarming number of these
issues still have below investment-grade ratings and are very much at risk of default."
The coming corporate debt tsunami was discussed in an S&P study released in late January. Its analysis of
America's second impeding economic meltdown was telling:
"Based on the maturity schedules of all rated U.S. fixed- and floating-rate corporate bonds and bank debt, we
estimate high-yield refunding needs of $42 billion in 2010, growing to $87 billion in 2011, $159 billion in 2012,
and $244 billion in 2013," stated the report.
"If revolvers are included, the total exposure is $53 billion in 2010, rising to $120 billion in 2011, $198 billion in
2012, and $277 billion in 2013," according to the S&P study.
"The share of speculative-grade rated debt to total rises to 45% by 2013--up from 11% in 2010, 21% in 2011,
and 27% in 2012," the report added.
However, the S&P study projects a 2010 default rate of 'only' 5% to 6.9% for speculative grade debt. By
comparison, the 2009 default rate was 10.9%.
But some financial analysts believe the second debt crash will be worse than S&P is willing to admit.
"You have too much debt coming due, and not enough money to refinance it," John Lekas, president and CEO
of Leader Capital Corp., told DailyFinance in January. Leader Capital Corp. currently runs a short-term bond
fund.
Lekas flatly insists that another stock crash is sure to happen by 2014 at the latest. He also expects that once
again we will see America's financial double standard on display. Lekas predicts that Big Business will have a
decent chance to refinance its debt for the short term, while smaller companies--and most individuals--will
again be shut out.
Lekas states that a second meltdown will be especially harsh on intermediate corporate bonds and junk
bonds, once the debt finally comes due.
"You're going to see more downgrades, and spreads are going to re-expand," Lekas told DailyFinance. "The
light at the end of the tunnel is a train."
Of course, no one precisely knows what is going to happen when all of this corporate debt comes due. But we
know that banks are reluctant to extend debt financing in today's depressed market.
So can anyone sincerely believe that these same banks will freely extend debt lines in 2013, when 45% of all
loans--nearly half--may prove to be little more than acts of wild speculation?
You don't have to be Geronimo to hear this train barreling down the track.
Like what you're reading so far? Then why not order a full year (52 issues) of The American Spark
e-newsletter for only $15? A major article covering an story not being told in the Corporate Press will be
delivered to your email every Monday morning for a full year, for less than 30 cents an issue. Order Now!
By Cliff Montgomery - Feb. 22nd, 2010
Corporate Debt accumulated during the George W. Bush years of eased regulation may create a second
economic crash by 2013, according to DailyFinance, a financial Internet magazine.
"Wall Street's love of leverage is threatening to turn around and bite it in the assets," states an article
published by DailyFinance this January, "as many companies find their issuance of debt could potentially
become their undoing."
Here's the deal: For all the talk about the 'end of the Great Recession'--at least for bailed-out Wall Street
millionaires--there is still a gargantuan amount of debt on corporate books.
Big Business primarily stacked up this debt from 2003 to 2007. The massive debts will come due by 2013 or
2014 at the latest.
Companies already are hurting from the Wall Street meltdown of 2008, which itself was brought on by a
combination of corporate greed, unregulated gambling and a lack of serious investment.
The inability of Big Business to refinance its remaining liabilities will force it to pay a high rate of interest on its
debt. This can only whittle away corporate earnings and force a number of companies into bankruptcy.
How far-reaching is this ticking time bomb?
Standard & Poor (S&P) judges that at least 807 speculative grade issues were created in America from 2006
through 2009.
"While only 82 (11%) of those bonds have defaulted," stated DailyFinance, "an alarming number of these
issues still have below investment-grade ratings and are very much at risk of default."
The coming corporate debt tsunami was discussed in an S&P study released in late January. Its analysis of
America's second impeding economic meltdown was telling:
"Based on the maturity schedules of all rated U.S. fixed- and floating-rate corporate bonds and bank debt, we
estimate high-yield refunding needs of $42 billion in 2010, growing to $87 billion in 2011, $159 billion in 2012,
and $244 billion in 2013," stated the report.
"If revolvers are included, the total exposure is $53 billion in 2010, rising to $120 billion in 2011, $198 billion in
2012, and $277 billion in 2013," according to the S&P study.
"The share of speculative-grade rated debt to total rises to 45% by 2013--up from 11% in 2010, 21% in 2011,
and 27% in 2012," the report added.
However, the S&P study projects a 2010 default rate of 'only' 5% to 6.9% for speculative grade debt. By
comparison, the 2009 default rate was 10.9%.
But some financial analysts believe the second debt crash will be worse than S&P is willing to admit.
"You have too much debt coming due, and not enough money to refinance it," John Lekas, president and CEO
of Leader Capital Corp., told DailyFinance in January. Leader Capital Corp. currently runs a short-term bond
fund.
Lekas flatly insists that another stock crash is sure to happen by 2014 at the latest. He also expects that once
again we will see America's financial double standard on display. Lekas predicts that Big Business will have a
decent chance to refinance its debt for the short term, while smaller companies--and most individuals--will
again be shut out.
Lekas states that a second meltdown will be especially harsh on intermediate corporate bonds and junk
bonds, once the debt finally comes due.
"You're going to see more downgrades, and spreads are going to re-expand," Lekas told DailyFinance. "The
light at the end of the tunnel is a train."
Of course, no one precisely knows what is going to happen when all of this corporate debt comes due. But we
know that banks are reluctant to extend debt financing in today's depressed market.
So can anyone sincerely believe that these same banks will freely extend debt lines in 2013, when 45% of all
loans--nearly half--may prove to be little more than acts of wild speculation?
You don't have to be Geronimo to hear this train barreling down the track.
Like what you're reading so far? Then why not order a full year (52 issues) of The American Spark
e-newsletter for only $15? A major article covering an story not being told in the Corporate Press will be
delivered to your email every Monday morning for a full year, for less than 30 cents an issue. Order Now!
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