subject: Emerging facts on Credit System in US [print this page] Emerging facts on Credit System in US Emerging facts on Credit System in US
The wonderful commercial progress and development of USA during the past century has astonished the old world and amazed even ourselves. In looking about for the moving causes, which have produced this great result, we must ascribe a large part to our credit system, extending as it does, to every nook and corner of the land. In no country in the world is credit so easily obtained and so extensively used as in the United States. The use of credit is not alone confined to the purchase or sale of goods on time or borrowing or lending money, but extends to innumerable acts of trust and confidence by which the machinery of the business world is kept in successful operation.
The delays by banks and other lenders recognize the severe losses in commercial real estate loans that could result in the pile-up of debt maturities in the credit systems in future years say in 2012 as in these loans to highly leverage corporate borrowers begin to mature. If this happens this could force could force businesses to liquidate bad investments or pressure the Fed to re-open the monetary and credit spigots, potentially complicating the federation exit from its existing stimulus programs.
The biggest risk to refinancing capacity for this wall of maturing debt, though the Federation is raising interest rates to control inflationary pressures and dollar depreciation, if necessary. Higher interest rates would preclude marginal borrowers from qualifying for refinancing, regardless of whether credit capacity exists.
Around $2,700bn of commercial mortgages comes due in the next five years, peaking in 2011, and $1,500bn of leveraged finance debt comes due, peaking in 2014. The pattern of contractual debt maturities is front-end loaded for commercial real estate and back-end loaded for leveraged finance debt.
However, the good feature lies in this is US credit systems is owing to buoyant markets. This means that in this year borrowers have worked down more than $91bn of leveraged finance debt that was previously scheduled to mature by 2014, and real estate investment trusts have raised more than $18bn of new equity capital.
As long as the capital markets remain buoyant, borrowers across the spectrum will keep recapitalizing, selling assets, restructuring, pre-paying debt, purchasing their debt below par, and replacing loans with longer maturity bonds.
