Fitch: New Funding Gap Emerges Courtesy of Refinancing Activity

NEW YORK--()--The gradual expansion in the number of loan maturities, the slowdown in amend and extend activity, below average default activity and the slowdown in bond for loan takeouts has caused the funding gap to widen, according to Fitch Ratings.

Fitch estimates the gap between required funding and current resources such as cash, equity or debt to be $170 billion at year-end 2013. Based on the historical present, the funding gap will likely be absorbed by some combination of the leveraged loan or high yield bond markets.

The increase in loan activity over the last couple of years, especially in 2013, reduced most loan maturities through 2015. The total amount of debt due through the end of 2015 was reduced from a high of $1.4 trillion at the beginning of 2009 to a mere $346 billion at year-end 2013.

Annual loan maturities amounts have been reduced to more normal levels that can be easily absorbed by traditional market activity. With the original refinancing cliff (2010-2015) now extended, the focus has begun to shift to the next maturity peak forming in 2017-2018.

Loan refinancing has represented the greatest single driver of loan movement within the refinancing cliff time frame during each of the last three years. Loan refinancing (combined with repricings) totaled $756 billion in 2013, or 65% of total loan issuance. Its impact on the refinancing cliff, especially in 2013, has been profound.

Fitch estimates that refinancing activity in 2013 reduced the new refinancing cliff (2014-2018) by $265 billion. The market has clearly been focused on longer dated maturities, as 60% of total refinancing issuance in 2013 was applied to loan maturities in 2015 and beyond.

The increase in loan refinancing activity over the last two years, with many of these loans carrying a five- to six-year tenor, have pushed a great deal of loan maturities into 2017 and 2018. The amount of loans coming due in 2017 and 2018 totaled $890 billion at year-end 2013. This new peak is approximately 20% larger than the original refinancing cliff peak (2013 and 2014) estimated in early 2009.

For additional information on this topic, please see our special report titled, "Bridging the U.S. Refinancing Cliff: Volume VII - Loan Refinancing Morphs Cliff Shape," available on our Website www.fitchratings.com

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

Applicable Criteria and Related Research:

Bridging the U.S. Refinancing Cliff (Volume VIII - Loan Refinancing Morphs Cliff Shape)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=736375

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Contacts

Fitch Ratings
Darin Schmalz, +1-312-606-2324
Director, Leveraged Finance
Fitch, Inc.
70 West Madison Street
Chicago, IL 60602
or
Kellie Geressy-Nilsen, +1 212-908-9123
Senior Director
Fitch Wire
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Media Relations:
Brian Bertsch, New York, +1 212-908-0549
brian.bertsch@fitchratings.com

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Contacts

Fitch Ratings
Darin Schmalz, +1-312-606-2324
Director, Leveraged Finance
Fitch, Inc.
70 West Madison Street
Chicago, IL 60602
or
Kellie Geressy-Nilsen, +1 212-908-9123
Senior Director
Fitch Wire
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Media Relations:
Brian Bertsch, New York, +1 212-908-0549
brian.bertsch@fitchratings.com