Canadian Investment Review

Wall of Corporate Debt Crumbling

Written by Caroline Cakebread on Wednesday, August 25th, 2010 at 7:40 am

984948_money_isolated_with_backdropWith the steep drop in the US housing market dominating headlines this week, a story posted today on Reuters points to some good news for the US economy. Collective corporate debt is shrinking. We also know that US companies are sitting in record amounts of cash in the wake of the credit crisis – about $3 trillion and they are starting to spend it.

(Reuters) – Financial markets are knocking down a wall of debt maturity that has endangered the U.S. economic recovery and threatened to push more companies into bankruptcy, according to an investment firm report on Tuesday.

Companies must refinance about $400 billion in debt over the next five years, according to Morgan Joseph LLC’s second-quarter financial restructuring outlook. The specter of companies defaulting en masse has worried investors even as bankruptcy attorneys have geared up for a busy few years.

But that mountain of debt has shrunk by more than 25 percent over the last two years as lenders agreed to extend favorable terms rather than forcing repayments. It is expected to crumble more as companies including formerly bankrupt plastics maker LyondellBasell Industries NV (LALLF.PK) have sold high-yield “junk” bonds to raise cash to repay loans.

“The maturity wall may not be the doomsday liquidity event once projected,” the investment firm said. Full article.

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