It is impossible to refinance $46 trillion within current global liquidity, so what to do?

It is impossible to refinance $46 trillion within current global liquidity, so what to do?


Author: Debra Mitchell

European companies could face serious challenges refinancing a wall of maturing debt over the next few years as the region's banks deal with the impact of regulation and fallout from the Eurozone debt crisis.

It is predicted that companies around the world will need new funding or to refinance existing debt totalling as much as $46 trillion over the next five years.

And while global banks and debt capital markets should be able to provide the majority of funding for companies, concerns are being raised about the ability of European lenders to meet all corporate funding needs as they deal with the impact of sluggish economic growth and tough regulatory requirements.

While the majority of the economic and regulatory challenges facing the banks are similar in both the US and Europe, most of them will have a more severe impact on lending capacity in Europe. European banks have to adapt to a weaker economy and uncertainties relating to sovereign debt while managing more highly leveraged balance sheets.

As banks shrink, companies in Europe will increasingly turn to capital markets over the next few years to meet their funding requirements.

Jay Dhru, a senior managing director at rating agency Standard & Poor said that while the current view is that there will be enough liquidity in the system to meet the 'formidable' $46 trillion wall of corporate borrowings between 2012 and 2016 in the US, the Eurozone, UK, China and Japan, and 'significant headwinds' could change the situation.

He said a deepening of the Eurozone financial crisis, a hard landing in China, or volatility in commodity prices were among factors that could make it more difficult for companies to borrow.

What are the available options?


We will no doubt continue to see a variety of other solutions to manage upcoming maturities, including:

  • other sources of financing (such as private placements, asset-based lending and convertible bonds)
  • mergers and acquisitions (M&A)
  • initial public offerings
  • non-core disposals
  • companies deleveraging through cash generation


Private equity (PE) firms may also be a source of funds. At present, PE funds reportedly have access to US$400 billion, which could be used in M&A, equity injections and debt buy-backs to maintain control of existing investments.

However, we will undoubtedly see more situations where debt restructuring will be required to provide a sustainable capital structure.

The appetite of lenders to participate in 'amend and extend' (where lenders extend the maturity of leveraged loans in return for better economic returns) will be dependent on the macroeconomic environment and lenders may prefer to see an alternative solution and debt restructuring.

The range of available options to smaller and medium-sized companies will be more limited, and they could face greater challenges with their upcoming maturities than larger companies.