Bonds in the telecom, media and technology sectors may come under increased pressure as TMT companies face the largest amount of redemptions of any high-yield industry due in the next couple of years. The sector, which was responsible for 40% of defaults in 2004, is facing $20 billion and 21% of debt maturities through 2007, according to Moody's Investors Service's annual refunding risk report.
Junk-rated companies have been able to easily refinance debt over the past year in a low interest rate environment where investors have been flocking to yieldier credits. Yet this trend may be turning around as rising rates temper the bid for yield, explained Paul Aran, v.p. at Moody's. "The environment may not be as aggressive... which could either mean defaults or more expensive refinancings, which would put increased pressure on cash flows," he added. Speculative-grade companies face $56 billion of bond maturities through 2007 and refunding risk skyrockets in 2007, with almost $28 billion of B1 or lower rated credits coming due.
