Weakest European firms face highest amount of maturing debt since 2015 – DB

By Chiara Elisei

LONDON (Reuters) – The share of lower-rated European junk debt coming due within the next three years is at its highest since at least 2015, Deutsche Bank said on Tuesday, a sign the weakest borrowers may struggle to repay their debt as rates rises bite.

The bank added that in the absence of a soft landing, weaker economic growth and a potential hawkish stance from the European Central Bank (ECB) suggest that financing conditions will remain tight, increasing pressure for corporates in the second half of the year.

While debt maturities appear manageable for the remainder of 2023, helping firms keep downgrades and defaults at bay, the outlook is much bleaker for 2024 and 2025 as the amount of maturing debt rises, Deutsche Bank said.

There are some 23 billion euros ($25.32 billion) and 48 billion euros of high-yield debt rated below BB maturing within the next 24 and 36 months respectively, the bank said.

The amount of leveraged loans due to mature stands at 25 billion euros in 2024 and 71 billion euros in 2025.

Upcoming maturities remain chunky despite companies’ efforts to address refinancing needs this year, Deutsche Bank added.

Out of the new debt sold so far in 2023, 67% of high yield bonds were earmarked for refinancing – the highest since 2012. Similarly, 50% of new loans were used for refinancing purposes, the highest percentage since 2017.

The bank expects this trend to continue as firms try to seize any opportunity to refinance.

However, corporates’ fundamentals are deteriorating, lending conditions are tightening while ECB rate hikes are biting, suggesting that riskier firms will struggle to access the market to meaningfully push out their maturity walls, Deutsche Bank said.

The sectors under most refinancing pressure are telecoms, consumer staples, retail and real estate for high yield bonds. In the leveraged loan space the chemicals, leisure, and food products industries face the largest share of looming debt.

Some of these sectors such as real estate, software, and food products are also seeing an increase in distressed debt rates, Deutsche Bank said, warning that distress could expand to other industries if prospects for a soft economic landing fall through in the second half of the year.

($1 = 0.9084 euros)

(Reporting by Chiara Elisei, editing by Yoruk Bahceli and Chizu Nomiyama)