Due to the time, credit may freeze again

Credit may freeze again. The maturing time of corporate debts is approaching. The Mayans had envisioned that the world would come to an end around 2012 – in a Hollywood version. But junk bonds had not been calculated as one of the prime causes that would lead to this planetary catastrophe.

Perhaps this fact should have been included. The year 2012 marks the start of a period covering three years in which high yielding risky corporate debts covering more than $700 billion will mature. This unusual tidal wave will overload the credit market.

Around this same time the corporations and the federal government is expected to be slapped with mega bills. The concern is that many of the firms would not be able to get fresh loans. This will kick off defaults and series of bankruptcies. The USA government by itself will require to borrow in 2012 about $2 trillion to bridge the deficit in the budget for 2012 and to refinance the old debts.

Concern about increasing national debt was voiced by Moody’s Investors Service. It warned that America and other nations of the West were shifting “substantially” faster to lose their position as their top credit rating of AAA. Moody has always been known for their toned public statement is now sounding the alarm bells.

Apart from the national debt the approaching struggle for corporate financing could put a strain on the general economy with jobs being cut and spending being further reduced as credit would dry up for both the consumers as well as the business entities. Kevin Cassidy of Moody’s said, “An avalanche is brewing in 2012 and beyond if companies don’t get out in front of this.”

The private equity firms and a good number of non-financial firms availed of easy borrowing till the credit crisis made its debut in 2007. But the long term reckoning will not dawn till 2012 because so far the problem has been kept at bay with stimulus and other prop ups.

The huge number of loans and bonds that had been issued to fund these transactions will come due within five to seven years said Diane Vazza of Standard & Poor’s. She added that many firms whose debts had matured in 2009 and 2010 have been able to get extensions but this extra temporary help will only add to the pending bills due for 2012 and beyond that year.

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