NEW YORK, March 16 (Reuters) - U.S. non-financial companies are facing a costly refinancing hurdle, with about $300 billion of investment-grade bonds maturing by the end of 2011, Moody's Investors Service said on Monday.
Tight credit markets could make it more difficult to refund that debt, especially the $99 billion maturing this year, Moody's said in a report.
"Irrespective of the ability to refinance maturing debt, the cost of funding has escalated, even for the strongest investment-grade companies," Moody's said.
Corporate borrowing costs have risen as lenders demanded more compensation for risks during a global recession and the worst financial crisis since the Great Depression. The average investment-grade corporate bond now yields 8.3 percent, up from about 6 percent when the credit crisis started in the summer of 2007.
The good news is that attractive yields are increasing demand for investment-grade corporate bonds outside the financial sector, Moody's said. That is illustrated by a more than 150 percent increase in new issuance during the first two months of 2009 versus the same period in 2008, it said.
Moreover, the majority of maturing investment-grade bonds are relatively highly rated, with more than half rated in the "A" range or higher, which is a mid-level investment-grade category, Moody's said.
However, a raft of rating downgrades could add to refinancing risks, Moody's said. About $100 billion of the maturing high-grade debt is rated just one or two steps from junk status, according to the agency.
Refinancing risk is the danger that companies will not be able to economically sell new debt to pay off maturing bonds.
"As the global recession deepens, profitability and operating cash flow are deteriorating even for many investment-grade companies," Moody's said. That means that more companies will likely violate covenants, or terms of lending agreements, the agency said. The majority will likely be able to negotiate new terms, but may have to pay substantial fees to do so, Moody's said.
About 9 percent of all high-grade bond issuers have less than 20 percent headroom under their current covenants, Moody's said.
(Reporting by Dena Aubin, Editing by Chizu Nomiyama) (dena.aubin@thomsonreuters.com; +1-646-223-6325; Reuters Messaging: dena.aubin.reuters.com@reuters.net))
