Firms head for a $46 trillion credit crisis
FIRMS worldwide are heading for a “perfect storm” as they desperately try to raise up to $46 trillion (£25 trillion) to refinance their debts and fund fresh spending just as banks seek to scale down their balance sheets further to reduce risk, according to an influential report.
Non-financial companies in the Eurozone, UK, US, China and Japan will need between $43 and $46 trillion over the next five years, $30 trillion of which will be used to refinance old debts, with up to $16 trillion needed to fund new spending plans, credit rating agency Standard & Poor’s said in a report published yesterday.
The staggering scale of the refinancing deemed necessary, on top of the new debt companies will have to sell, threatens to create what S&P described as a “perfect storm for credit markets,” with governments lacking the flexibility to prevent serious problems causing financing disruptions even for borrowers that are not highly leveraged.
“This global wall of nonfinancial corporate debt will potentially compound the credit rationing that may occur as banks seek to restructure their balance sheets, and bond and equity investors reassess their risk-return thresholds,” said S&P’s Jayan Dhru, senior managing director.