Link to Fitch Ratings' Report: U.S. Leveraged Finance Stats Quarterly -- First Quarter 2012
Credit quality for U.S. speculative grade debt issuers has stabilized, though continued improvement could be challenging, as detailed by Fitch Ratings' in its latest 'Leveraged Finance Stats Quarterly - First Quarter 2011'.
Continued credit improvements for both 'BB' and 'B' rated issuers have become increasingly more challenging. This is primarily because top-line growth has stagnated and the capacity for further cost cutting remains limited. Prior to the first quarter, minor improvements in top-line growth and stable margins have contributed to higher EBITDA levels and decreased leverage.
First quarter aggregate leverage has remained flat quarter-over-quarter at 4.2 times (x) and has declined modestly year-over-year from 4.4x. Declining leverage levels for 'BB' rated issuers have started to flatten at 3.2x. Modest declines in leverage for 'B' rated issuers have occurred at 5.0x (from 5.2x the year prior).
Overall stable credit profiles for most high-yield issuers should allow a buffer to withstand a prolonged period of weak economic growth.
Liquidity has remained adequate to strong for most issuers. However, average cash balances have declined as capital spending has normalized from recession lows. On average, 'BB' rated issuers have approximately 80% available on their revolving credit facilities (versus 73% for 'B' rated issuers). Issuers may look to further bolster their liquidity positions as memories of a credit crunch have left issuers with a strong focus on maintaining ample liquidity.
Most issuers have addressed near-term refinancing needs. Total cash on hand in the portfolio well exceeds maturities through 2013. Issuers over the last few quarters have been focused on refinancing maturities during the 2013 and 2014 time frame. In the portfolio, 2013 and 2014 maturities represent 5% and 9% of overall total debt, respectively.
'B' rated issuers that have not addressed near-term maturities could be at risk should the current tone in the high-yield debt markets continue through the second half of 2012.
On the sector level refinancing risk remains a focus for the Transportation; Energy, Oil, and Gas; Consumer, Food, and Beverage. Above average 2013 and 2014 maturities to total sector debt levels will come in at approximately 32%, 25%, and 23% respectively.
Aerospace & Defense; Packaging, Paper, and Forest Products; Metals & Mining; Retailing; and Telecom sectors have primarily addressed refinancing needs for this period. 2013 and 2014 maturities to total debt of will total approximately 5%, 8%, 10%, 11%, and 11%, respectively.
Additional refinancing risks for specific issuers is addressed in Fitch's fifth installment of the 'Bridging the Refinancing Cliff', a series focuses on those issuers with large amounts of loan and bond debt coming due in 2013 and 2014.
Additional information is available at www.fitchratings.com.
Applicable Criteria and Related Research:
--'Bridging The Refinancing Cliff' (April 20, 2011).
Adam Dolkart, +1-312-368-2095
Fitch, Inc., 70 W. Madison Street, Chicago, IL 60602
Michael Simonton, CFA, Head of U.S. Leveraged Finance, +1-312-368-3138
Brian Bertsch, New York, +1-212-908-0549