The Trillion Dollar Deadline

How will companies pay for the mountain of dodgy debt maturing soon?

Nearly $1 trillion in risky debt comes due from 2011 to 2015, and even if the credit crunch is long past, companies will likely struggle to refinance it says CreditSights. Expect to see more battles like the current one between General Motors and its creditors.

It’s not just the size of the looming maturities that poses a problem. The central issue is that many of the buyers who helped build the mountain of debt have disappeared. The shadow banking system, the mix of hedge funds and structured investment vehicles, has collapsed, writes Chris Taggert, analyst at the credit research company. Companies with junk debt will have to fight with sturdy, investment-grade companies for survival.

Part of the blame lies with private equity firms like the Blackstone Group and Apollo Management. During their heyday, they bought companies by loading them up with debt. Those bank loans and bonds were sold to other investors, such as hedge funds and collateralized loan obligations that often borrowed to buy them. The days are gone “when one real dollar could easily buy $5 or more dollars of leveraged finance debt,” Taggert writes. Many maturities will come from these companies whose capital structures were layered with debt in 2006, during “the peak of the credit craze.”

Some $936 billion in high-yield bonds and loans will come due from 2011 to 2015. That’s 96% of all leveraged loans and 59% of the entire junk-bond index, CreditSights says.

As a result, there will likely be a rise in fights between creditors and companies similar to the current battle over General Motors debts. Debt swaps, in which companies offer to buy back debt at a steep discount, are suddenly popular with companies trying to escape bankruptcy.

Another $176 billion in credit lines also fall due between 2010 and 2015. Banks are likely to cut credit lines further as long as the economy slumps, much as Bank of America and others have for their credit card holders. Smaller lines of credit can have a ripple effect, Taggert writes: companies push to extend their debt and shorten due dates on what’s owed them. 

Get In brief HERE

Visit 13above For More Info's

A Trillion Dollar - Face Off

All this talk about "stimulus packages" and "bailouts"...

A billion dollars...

A hundred billion dollars...

Eight hundred billion dollars...

One TRILLION dollars...

What does that look like? I mean, these various numbers are tossed around like so many doggie treats, so I thought I'd take Google Sketchup out for a test drive and try to get a sense of what exactly a trillion dollars looks like.

We'll start with a $100 dollar bill. Currently the largest U.S. denomination in general circulation. Most everyone has seen them, slighty fewer have owned them. Guaranteed to make friends wherever they go.

A packet of one hundred $100 bills is less than 1/2" thick and contains $10,000. Fits in your pocket easily and is more than enough for week or two of shamefully decadent fun.

Believe it or not, this next little pile is $1 million dollars (100 packets of $10,000). You could stuff that into a grocery bag and walk around with it.

While a measly $1 million looked a little unimpressive, $100 million is a little more respectable. It fits neatly on a standard pallet...

And $1 BILLION dollars... now we're really getting somewhere...

Next we'll look at ONE TRILLION dollars. This is that number we've been hearing so much about. What is a trillion dollars? Well, it's a million million. It's a thousand billion. It's a one followed by 12 zeros.

You ready for this?

It's pretty surprising.

Go ahead...

Notice those pallets are double stacked.
...and remember those are $100 bills.

So the next time you hear someone toss around the phrase "trillion dollars"... that's what they're talking about.

Visit 13above For More Fun