The Maturity Wall, Again

by hungryakl

Judging by the quality of your posts, most of you retards hit a personal maturity wall somewhere around 9 years old. Well, guess what, some of the world’s biggest businesses are about to hit their own maturity walls and they might not get past it either.

In 2020 (and continuing to 2023) the market will see record levels of spec-grade (ie. junk) bonds expiring.

What happens when bonds expire? The company must pay them back in full.

What if they don’t have the cash? They raise more cash by taking out new debt.

What if they can’t take out any new debt because homie bit the bat in China and now all their stores are closed and their staff are laid off? Well, then they’re fucked.

Big brain investors have been worrying about this for years, before the economy had even thought about shitting the bed.

  1. www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/high-yield-bond-news/the-2020-maturity-wall-4-1t-of-bonds-to-mature-and-13-of-that-is-high-yield
    From 2016: “Issuers with low speculative-grade ratings of ‘B-‘ or lower could find current market conditions difficult. By sector, we believe the commodity-exposed sectors of oil and gas and metals, mining, and steel likely will face continued challenges as volatile commodity prices contribute to elevated negative biases …” That was when oil was $43 a barrel.
  2. www.marketwatch.com/story/junk-bond-market-gets-riled-up-over-potential-crash-into-a-maturity-wall-2018-02-02
    From 2018: “For debt-laden companies who need to roll their bonds over when the principal payments come due, a sharp rise in borrowing costs could catch them ill-prepared.”
  3. www.dallasfed.org/research/economics/2019/0305.aspx
    From 2019: “As a central banker, I am carefully tracking the growth in BBB and less-than-investment-grade debt. In the event of a downturn, highly indebted companies may be more vulnerable to seeing their credit quality deteriorate, which could negatively impact their capital spending and hiring plans. If this deterioration were sufficiently widespread, credit spreads would likely widen in order to compensate lenders/bondholders for greater risk. This type of widening would likely be indicative of an overall tightening in financial conditions that could, in turn, lead to a more significant slowing in the economy.”
  4. wolfstreet.com/2019/04/09/how-a-stock-gets-hit-when-an-investment-grade-company-tries-to-dodge-a-downgrade-to-junk/
    From 2019: “In the next downturn, many bonds in the BBB-category will transition to junk, and many junk bonds but also some investment-grade bonds – if the past is any guide – will transition to default. Two-notch downgrades are not uncommon: one day you wake up, and your “BBB” investment-grade bond is a “BB+” junk bond.”
  5. asreport.americanbanker.com/news/moodys-five-year-hy-maturity-wall-hits-record-level
    From 20 Jan 2020: “Moody’s is concerned, however, that declining credit quality in speculative-grade debt “points to potentially higher defaults during the next downturn.” The $750 billion, five-year maturity window for leveraged loans and revolving credit facilities grew 27% from last year’s five-year outlook, and is at its highest level since Moody’s began tracking those number”

Fig 1. Yellow isn’t good

Fig 2. Note how many issuers were sitting on the edge of junk territory with a BBB rating

So, a lot of shitty debt is coming due soon, and a lot of “not shit” debt may actually be shit too. This might not be a problem if business was booming; we’ve seen maturity walls come and go before. But we’re seeing the house of junk start to crumble. Ford, previously at BBB- was downgraded to junk last week. How do you think that will impact their ability to take out debt? How would that effect their share price? Their last resort is to issue new shares, further lowering the share price, or pray for another bailout. It’s not looking good.

At this point you should be thinking “how do I find other shitters like Ford?” and this is how: markets.businessinsider.com/bonds/finder

You want to look for bonds expiring in the next year or two, with low ratings / high yield.

I found examples like Gamestop, Tupperware, Hertz. I considered how their business might be faring at present. I wondered if their rating would go up or down. I thought “puts”.

Related:

BBB-rated corporate bonds are the Achilles’ heel of the global economy

One of the most concerning aspects of the current market crisis is this chart. Almost half of the investment-grade corporate debt is BBB-rated and just one step over the non-investment grade.

Coronavirus was an unexpected event that shook the markets and triggered huge sell-off and dislocations, however, the actual effects of the slow-down are yet to come. Once BBB-rated corporate bonds start losing their investment-grade status, liquidity will dry up for these guys.

Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence.