HY Liquidity Needs: 13 to Watch

CreditSights Staff

EXECUTIVE SUMMARY
  • The first half of 2022 proved challenging for almost the entire HY market as a combination of duration fears and credit concerns weighed on spreads and returns across the board. Elevated market volatility and rising borrowing costs pushed issuers to the sidelines and companies with pressing liquidity needs faced outsized headwinds, driving valuations, and implied borrowing costs, to punitive levels.
  • The wave of opportunistic refinancing in 2H20 and 2021 left most companies in good shape from a balance sheet/liability management perspective and the near-term HY maturity wall is relatively small and weighted to higher rated companies. Even so, a handful of larger, more storied/stressed companies still need to raise cash in the next 12-24 months.
  • In this report, we take a closer look at overall HY market trends, including maturity profiles across ratings and sectors, potential debt capital markets needs and identify some of the largest, more storied/stressed HY issuers with pressing liquidity needs.
  • Our analyst team identified 13 HY issuers with meaningful maturities or cash needs through 2024; We provide a brief overview of each situation, potential catalysts and a synopsis of our credit view/recommendation for each of these companies.

The first half of 2022 proved challenging for almost the entire HY market as a combination of duration fears and credit concerns weighed on spreads and returns across the board. Elevated market volatility and rising borrowing costs pushed issuers to the sidelines and companies with pressing liquidity needs faced outsized headwinds, driving valuations to punitive levels. The wave of opportunistic refinancing in 2H20 and 2021 left most companies in good shape from a balance sheet/liability management perspective and the near-term HY maturity wall is relatively small. Even so, a handful of large companies still need to raise cash in the next 12-24 months. In this report, we take a closer look at overall HY market trends, including maturity profiles across ratings and sectors, potential debt capital markets needs and some of the largest, more storied/stressed HY issuers with pressing liquidity needs.

HY Maturities & Liquidity Needs: Still in the Distance

HY market near-term maturities (2022-2024) are quite manageable in aggregate, totaling only $129 billion, or less than 10% of HY outstanding. Attractive refinancing conditions of the last few years helped push out the wall of maturities, which begins to build in 2025 and peaks in 2029. Supportive capital markets also lowered the cost of debt across the HY market and the average index coupon fell to 5.7% from 6.3% (in February 2020). While downgraded fallen angel debt played a material role in lowering average coupons across the market, we estimate that refinancing activity in 2H20 and 2021 reduced aggregate borrowing costs by ~30 bp.

Across the HY maturity profile, the average coupon on existing bonds decreases from 6.6% in 2025 to 4.4% in 2031. Shorter-dated coupons vary as maturities in 2022 have relatively low average coupons (5.3%), 2024 maturities also have an average coupon of 6% or lower, while the average coupon on 2023 maturities is higher, at 6.5%. At the same time, as investors have moved to shed credit risk ahead of a potential economic slowdown, front-end HY yields have risen and the HY yield curve is now inverted with 2025 maturities trading at the highest level (11.3%). Given current market conditions and the trajectory for FOMC rate hiking, issuers with 2022-2024 maturities that seek to refinance in the HY bond market will likely need to pay up relative to existing borrowing costs/coupons.

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