The Debt-Liquidity Refinance Cycle

[Joe Leote]

Refinance (rollover) of old debt exists today as a debt-liquidity refinance cycle:

https://youtu.be/M2VRpfH0sGU?t=1386

Finance and refinance are in a boat. Finance jumps out. Who is left? Refinance!

Joe

[William Meyer]

Agree but always wonder when people bring up the maturity wall thing.  The only area where rate resets might bite are high yield but isn't hy in very good shape these days?  Leveraged loans and or private credit are sofr + so they are already feeling it.  If they can make cash interest payments, the debt will get rolled.  If they can't...in the private space at least the creditors are already often the owners in cases such as these.  Between CRE, private credit exposure and treasury bond capital losses it is a wonder more banks havent collapsed.

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[Joe Leote]

I'm not sure about the specific question. I think the comments imply that specific private creditors are locked-in to take a loss on many non-performing loans. If so then there is less concern for systemic risk. Informal research suggests the Commercial Real Estate (CRE) loans have aggregate maturity concerns. Specifically, the payment of interest occurs but the deadline to refinance (rollover) the principal amount has in many cases been extended by creditors. This policy of renegotiating credit terms to avoid recording default losses is sometimes called "extend and pretend". I don't have good sources these days to identify where the debt defaults, and credit write-offs, would trigger increasing systemic risk would 

Widening credit spreads are considered to be the signal of potential liquidity shortages, due to lack of balance sheet capacity (risk off), and an indicator of rollover risk:

Signals in the shadows: What credit spreads reveal about risk — Nationwide Financial

I suppose credit maturity walls would require more balance sheet capacity to refinance without adversely impacting spreads. If many creditors are taking write-offs there would be a lack of appetite to finance rollover of the maturity wall at prevailing interest rates. There are people who see the maturity wall(s) as a concern and people who explain that these "walls" historically manifest and do not usually trigger adverse market events.

Joe

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