Rising interest rates have created plenty of pitfalls for private investors, but the fast approaching ‘maturity wall’ is not typically at the front of their minds. This worry – linked to the trillions of dollars-worth of debt due to mature between 2025 and 2028 – is largely confined to the bond markets, where it’s feared higher-for-longer rates will trigger a wave of defaults when companies refinance their debt. Issuers of high-yield (ie, junk) bonds look particularly vulnerable.
- Beneficiary of higher base rates
- Attractive dividend
- Low correlation with equity markets
- Downside protection via tender offering
- Opaque asset class
- Rate cut could hit yields
As a general rule, it’s more difficult for struggling companies to deleverage when they’re faced with higher borrowing costs. If they could easily sell off liquid assets or reduce their operating expenses they probably would, but some firms simply have very little choice but to refinance their existing loans at less favourable rates. Conventional wisdom would suggest companies under this sort of stress make poor investment prospects. However, bosses at CVC Income and Growth (CVCG) would argue you can’t say the same for the debt itself.