Some of the largest US companies face billions of dollars in additional interest costs and hits to their profit if they refinance their 2024 maturities at current rates, with a third of them lacking the cash to repay upcoming debt.
Non-financial companies in the S&P 500 have a combined $107.7 billion in debt coming due next year, with an average interest rate of 2.8%, according to a Calcbench analysis seen first by Bloomberg News. Refinancing at 5.44% – the rate of the one-year Treasury bill in early November – would add another $3.09 billion in collective interest expense, the financial research firm said in its analysis. Calcbench focuses on debt disclosures and analysis of financial statements.
Using companies’ trailing twelve-month earnings per share ending with the second quarter as a baseline, that higher interest expense would reduce average EPS at 57 businesses with maturing debt in 2024 by $0.11, or 2.92%, Calcbench said. Still, for many of these firms, refinancing or raising money by selling assets is necessary to deal with upcoming debt maturities, especially if they don’t have enough cash.
“Depending on the nature of the company and the strength of its balance sheet, this is significant,” said Pranav Ghai, the founder and chief executive of Calcbench.
Companies are impacted by higher financing costs differently, with about two thirds of businesses holding enough cash to pay down their 2024 debt. The rest — or 19 companies out of the 57 — didn’t hold enough cash by the end of the second quarter to extinguish all debt coming due next year, and those numbers have further updated in the most recent quarter.
“We found numerous companies where higher interest expense was greater than available cash the companies had on hand, which implies that those companies must refinance or sell off assets to raise more cash,” Ghai said. “They can’t otherwise pay off the debt.”
US firms have been rushing to the market as Treasury rates declined, with highly rated companies raising $1.115 trillion in new debt through Nov. 13, up 1% compared with the prior-year period. Last week alone, investment-grade issuers sold $43 billion in new bonds, with forecasts calling for $100 billion in gross new issuance this month.
The cut-off point for Calcbench’s analysis was Nov. 6, with third-quarter results for several dozen S&P 500 companies still outstanding.
Refinancing Needs
One of the companies that holds less cash than its 2024 maturities, according to Calcbench, is pipeline operator Kinder Morgan Inc. The company has $1.9 billion in debt coming due next year and reported $497 million in cash at the end of the second quarter. Cash holdings declined to $80 million in the third quarter.
The company’s 2024 maturities are a small portion of its overall debt, according to its Chief Financial Officer David Michels.
“We intentionally spread out our maturity profile in order to minimize annual refinancing impacts,” he said. “Additionally, at the end of the third quarter, we had over $3.5 billion of short-term liquidity under our credit facilities, which gives us flexibility to remain patient when refinancing our debt.”
Meanwhile, cigarette maker Philip Morris International Inc. is anticipating higher financing costs for next year, said CFO Emmanuel Babeau. While the company wasn’t included in Calcbench’s analysis, it has several maturities in 2024, including $2.65 billion in dollar-denominated debt, according to data compiled by Bloomberg.
“We go through a number of refinancings, some of them next year,” Babeau said.
US companies across industries are grappling with whether to refinance their upcoming maturities at the risk of hurting profit or wait until interest rates are lower. The Federal Reserve left interest rates unchanged in early November, and Wall Street banks are divided on how aggressive they think the US central bank will be in cutting rates next year.
Costco Wholesale Corp. and biotechnology firm Boston Scientific Corp. are among those that are expected to see a hit to basic EPS if they refinance at current rates, according to Calcbench estimates based on trailing 12-month earnings at the end of the second quarter.
Boston Scientific — with $500 million coming due next year and over $1 billion in early 2025 — will likely see a hit to EPS of 0.83% in 2024, followed by a hefty 4.14% dent to EPS in 2025, Calcbench said. A representative for the Marlborough, Massachusetts-based company said the impact of higher financing costs on its EPS isn’t clear-cut.
“There are many approaches we can take when looking at our capital structure,” a spokesperson said.
Costco is considering repaying a $1 billion bond maturing in 2024 with cash, according to CFO Richard Galanti. Refinancing at the current rates doesn’t make sense, he told Bloomberg News.
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