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The defining book for the current

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Gordon T Long

RESEARCH ANALYTICS for the GLOBAL MACRO

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"SULTANS OF SWAP"

 

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Sultans of Swap: Smoking Guns!

ACT II

Sultans of Swap: The Sting!

ACT III

Sultans of Swap: The Get Away!

 

 

ALSO

SULTANS OF SWAP: Explaining $605 Trillion in Derivatives!

 

SULTANS OF SWAP: Fearing the Gearing!

 

FOR UPCOMING SHOW TIMES SEE: COMMENTARY

 


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 EXTEND & PRETEND: The Maturity Wall

 

In a recent article entitled "Sultans of Swap: Fearing the Gearing!" we outlined the growing amount of debt that will need to be refinanced and rolled over in the coming years. Since then the amount may have reached a level where the Maturity Wall will be too high to be scaled.

 

According to Morgan Stanley as outlined in a December article by Malcolm Maiden of the Brisbane Times, the US debt Maturity Wall looked like the following:

 

 

2010

2011

2012

2013

2014

TOTAL

COMMERCIAL REAL ESTATE

552

560

537

480

459

2.7T

LEVERAGED BUY-OUT DEBT

71

113

203

294

406

 

HIGH YIELD DEBT

35

64

75

82

126

 

 

 

 

 

 

 

 

TOTAL

657

737

815

856

992

4.2T

SOURCE: Morgan Stanley, Fixed Income Research & Economics (1)

 

The Morgan Stanley, Fixed Income Research & Economics (1) indicated we will require $4.2 TRILLION in new financing to accommodate loans of questionable viability, existing lending terms or loan to collateral value coming due.

 

On Monday March 15th Diane Vazza, head of global fixed-income research at Standard & Poor’s was quoted as saying "many companies whose debt matured in 2009 and 2010 have been able to extend their loans, but the extra breathing room is only adding to the bill for 2012 and after.  That is because the record number of bonds and loans that were issued to finance those transactions typically come due in five to seven years"(2)

 

The New York Times in "Corporate Debt Coming Due May Squeeze Credit" states that the "result is a potential financial doomsday, or what bond analysts call a maturity wall. From $21 billion due this year, junk bonds are set to mature at a rate of $155 billion in 2012, $212 billion in 2013 and $338 billion in 2014." (2)

 

If we compare the current results to those reported by Morgan Stanley in Q4 2009 we are struck with the magnitude of the problem.

 

Junk Bonds are one line item in our Morgan Stanley table above. What about the recently announced US Government debt financing needs? Also Investment grade debt?  Based on what has been reported only after a few months since Morgan Stanley issued their report, I minimally calculate the hurdle bar to be the following:

 

 

2010

2011

2012

2013

2014

TOTAL

INVESTMENT GRADE DEBT

 

 

526

 

 

 

COMMERCIAL REAL ESTATE

552

560

537

480

459

2.7T

LEVERAGED BUY-OUT DEBT

71

113

203

294

406

 

HIGH YIELD DEBT

35

64

155

212

338

 

 US GOVERNMENT DEBT

 

 

1800

1400

1400

 

TOTAL

657

737

3221

2386

2604

9.6T

 

This analysis is limited to the USA. Is their sufficient global savings to accommodate this amount of refinancing need plus the rest of the world?

 

There is little doubt it is going to be an Olympic record pole vault!

 

 

 

The last Extend & Pretend article: EXTEND & PRETEND - An Accounting Driven Market Recovery

 

 

SOURCES;

 

(1) 12-16-09 Wall of debt a barrier to US recovery – The Brisbane Times, Malcolm Maiden

(2) 03-15-10 Corporate Debt Coming Due May Squeeze Credit New York Times – Nelson Schwartz

(3) 03-04-10 Corporate Debt Coming Due May Squeeze Credit Gordon T Long

 


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Gordon T Long         

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Mr. Long is a former senior group executive with IBM & Motorola, a principle in a high tech public start-up and founder of a private venture capital fund. He is presently involved in private equity placements internationally along with proprietary trading involving the development & application of Chaos Theory and Mandelbrot Generator algorithms.

 

Gordon T Long is not a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. Of course, he recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that, we encourage you confirm the facts on your own before making important investment commitments.

 

© Copyright 2010 Gordon T Long. The information herein was obtained from sources which Mr. Long believes reliable, but he does not guarantee its accuracy. None of the information, advertisements, website links, or any opinions expressed constitutes a solicitation of the purchase or sale of any securities or commodities. Please note that Mr. Long may already have invested or may from time to time invest in securities that are recommended or otherwise covered on this website. Mr. Long does not intend to disclose the extent of any current holdings or future transactions with respect to any particular security. You should consider this possibility before investing in any security based upon statements and information contained in any report, post, comment or recommendation you receive from him.

 

 

 

 

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Gordon T Long is not a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. Of course, we recommend that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that, we encourage you confirm the facts on your own before making important investment commitments.

Copyright and Disclaimer

© Copyright 2010, Gordon T Long. The information herein was obtained from sources which the Gordon T Long. believes reliable, but we do not guarantee its accuracy. None of the information, advertisements, website links, or any opinions expressed constitutes a solicitation of the purchase or sale of any securities or commodities. Please note that the Gordon T Long. or its principals may already have invested or may from time to time invest in securities that are recommended or otherwise covered on this website. Gordon T Long does not intend to disclose the extent of any current holdings or future transactions with respect to any particular security. You should consider this possibility before investing in any security based upon statements and information contained in any report, post, comment or recommendation you receive from us.