‘Ruthless’ bankruptcies

The NYT has a story on what look to be ‘ruthless’ bankruptcies in store for companies who sought or were forced to take too much leveraged debt:

American companies currently have more than $1.7 trillion in S.&P.-rated bonds and loans maturing from 2011 to 2014. The total debt load coming due will climb steadily over the next four years, with the proportion of debt in the speculative category growing, the credit rating agency said.

In 2011, there will be about $300 billion in debt due, of which 41 percent is considered speculative. But by 2014, the amount of debt due climbs to about $550 billion, 72 percent of which is speculative.

“We believe that many borrowers at the low end of the ratings scale will encounter serious hurdles to their refinancing needs in 2013 and 2014,” John Bilardello, a managing director at Standard & Poor’s, said in the report. “Unlike investment-grade entities, for which the main issue is the rising cost of capital, speculative-grade borrowers may find that financial institutions and investors are wary of lending to them.”

Much of this debt currently owed by American companies was a result of heavy borrowing during the leveraged-buyout boom, which lasted from 2005 to 2007.

Private equity firms borrowed enormous sums of money from banks to finance the buyout of companies and then loaded the target companies up with debt.

But the target companies have since had a hard time paying down their debt because of the down economy, which blunted profits.

S.&P. believes that these companies have been successful in pushing back their debt maturities past 2010, avoiding a potential rash of defaults and bankruptcies this year…

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