US Corporate Debt Wall: $4.3 trillion maturities loom from 2027

A growing wall of U.S. corporate debt is set to mature from 2027, raising the pressure on companies to refinance borrowings that were secured at ultra-low interest rates during the pandemic, according to a report by Reuters.

About $4.3 trillion of non-financial corporate bonds issued in U.S. markets will mature between 2027 and 2031, according to a Reuters analysis of LSEG data. Annual maturities are expected to rise from about $572 billion in 2027 to roughly $1.03 trillion in 2030, after companies extended debt repayment schedules through refinancing, the report stated.

The refinancing challenge comes as global debt has climbed above a record $365 trillion, according to the Institute of International Finance. At the same time, higher U.S. Treasury yields have increased borrowing costs across financial markets. The benchmark 10-year U.S. Treasury yield is above 5%, close to its highest level since 2007.

Companies that locked in cheap fixed-rate financing earlier in the decade will increasingly need to replace that debt at higher interest rates as bonds mature. The resulting increase in interest expenses could put pressure on earnings, cash flow and investment plans, particularly for companies with weaker balance sheets, according to the report.

Also Read | Global Market: Japan’s Nikkei slips after early gains as Nasdaq futures weaken

Lower-rated borrowers are expected to face the greatest refinancing pressure. High-yield bond maturities are projected to rise from about $68.5 billion in 2027 to $314.1 billion in 2029, according to LSEG data. Investment-grade maturities are also set to increase, reaching $512.6 billion in 2029 from about $437 billion in 2027, the report stated.

High-yield debt is expected to account for about one-third of all corporate bond maturities in 2029, compared with 12% in 2027. The shift highlights the growing concentration of refinancing needs among companies that typically face higher borrowing costs.

PIMCO has said most investment-grade and high-yield issuers should be able to manage higher refinancing costs, although weaker borrowers could face a significantly greater squeeze. Coupons on CCC-rated bonds maturing in 2027 and 2028 could roughly double if the debt is refinanced at current index yields, according to the bond fund manager.

The refinancing wave will also coincide with substantial borrowing needs among major technology companies as they expand spending on artificial intelligence infrastructure. Goldman Sachs expects gross debt issuance by hyperscalers including Amazon, Alphabet, Meta, Microsoft and Oracle to reach $420 billion in 2027, about 60% higher than its estimated 2026 level.

Also Read |Global Market: KOSPI drops over 2% as Samsung, SK Hynix slide on yield concerns

The combination of maturing pandemic-era debt and fresh borrowing for AI infrastructure could therefore add to corporate credit supply just as companies face a more expensive financing environment. For investors, the scale and timing of these maturities will make refinancing costs and credit quality increasingly important factors in assessing corporate debt markets, according to the report.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
Add as a Reliable and Trusted News Source Add Now!
(You can now subscribe to our ETMarkets WhatsApp channel)