Complex Made Simple

EMEA investment-grade companies face no funding pressure: Moody’s

Proportion of bank debt within IG companies' total debt maturities continued to fall to 26 per cent in the 2016-19 period, from 28 per cent in the 2015-18 period.


Investment-grade* (IG) non-financial companies in the Europe, Middle East and Africa (EMEA) region face negligible near-term funding pressure with total debt maturities of $940 billion for the four-year period 2016-19, according to a recent Moody’s Investors Service report.

However, the report, titled EMEA Investment-Grade Non-Financial Companies: No Near-Term Funding Pressure, but Rising Interest Rates May Affect Financing Strategies, shows that an eventual increase in long-term interest rates is expected to influence corporate funding strategies over the period.

“Refinancing requirements for investment grade companies over the next four years are fairly well distributed, alleviating near-term funding needs. In addition, companies continue to hold large amounts of cash and short-term investments,” says Richard Morawetz, a group credit officer for the corporate finance group at Moody’s.

“However, the financial incentive for companies to lock in favourable interest rates and borrow well in advance of pending debt maturities, as some EMEA IG companies have done in recent years, will lessen after interest rates have moved to higher levels,” adds Richard who is also the author of the report.

The proportion of bank debt within IG companies’ total debt maturities continued to fall to 26 per cent in the 2016-19 period, from 28 per cent in the 2015-18 period, partly reflecting ongoing disintermediation.

Investment-grade utilities, telecommunications, autos and energy companies in the region have the greatest amount of debt maturing over the next four years with $537bn or 57 per cent of the total.

Meanwhile, IG companies in Germany, France and the UK hold the majority of both cash and debt, reflecting the higher number of ratings in these countries which is little more than 40 per cent.

On average the IG companies have about $8 billion in debt each, although with considerable variation by rating category, with companies in the Baa categories holding about $1.3 trillion of debt, or 53 per cent of the total $2.5trn of debt outstanding in the region’s IG universe.

*A level of credit rating for stocks regarded as carrying a minimal risk to investors. Bond rating firms use different designations consisting of upper- and lower-case letters ‘A’ and ‘B’ to identify a bond’s credit quality rating. ‘AAA’ and ‘AA’ (high credit quality) and ‘A’ and ‘BBB’ (medium credit quality) are considered investment grade. Credit ratings for bonds below these designations (‘BB’, ‘B’, ‘CCC’, etc.) are considered low credit quality, and are commonly referred to as “junk bonds”.