“There was this maturity wall that people were terrified of,” said Neil Wessan, the group head of New York-based CIT Group Inc.’s capital markets unit. “That’s been spread out over a much broader period of time.”
CIT emerged from a month of bankruptcy protection in December 2009. After a $592.3 million loss last year, analysts surveyed by Bloomberg forecast CIT will report its highest earnings in 2013 and 2014 since exiting bankruptcy.
The business lender sold 5% securities in July that are due in August 2023 to yield 5.125%. That’s below the 6.625% coupon on seven-year notes it issued in March 2011, data compiled by Bloomberg show.
“The availability of all this excess liquidity has allowed the market to re-price, amend and extend,” Wessan said. “That took a lot of pressure out of the system.”
Fed Governor Jeremy Stein warned in February that some credit markets, such as corporate debt, were showing signs of excessive risk-taking. Investors poured $758.7 billion into U.S. bond funds in the four years after 2008, according to research firm EPFR Global in Cambridge, Massachusetts.
“We are seeing a fairly significant pattern of reaching- for-yield behavior emerging in corporate credit,” Stein said at the time in a speech in St. Louis.
Company debt loads in the U.S. have increased faster than cash flow for six straight quarters. Debt of investment-grade companies rose in the second quarter to 2.09 times earnings before interest, taxes, depreciation and amortization, according to JPMorgan. That’s up from 2.07 times in the first three months of 2013 and compares with 2.13 in the third quarter of 2009, when it peaked after the longest recession since the 1930s.
Rite Aid, which lost money in five of the past six years, sold $810 million of eight-year debentures in June paying 2.5 percentage points less than similar-maturity debt it issued last year.
The most indebted U.S. drugstore generated $504 million of free cash in the 12 months ended March 2, the most since at least 1996. Rite-Aid, which Moody’s placed on its “Bottom Rung” list in its March 2009 report, is ranked B3 by the ratings firm and B- by S&P, both six levels below investment grade.
Susan Henderson, a spokeswoman for Rite Aid, didn’t respond to a telephone and e-mail message seeking comment.
Madison, New Jersey-based Realogy, the most indebted U.S. real-estate services company, has decreased its total interest expense to $255 million from $672 million in 2012, Chief Financial Officer Anthony Hull said in a July interview.
A strengthening economy may help indebted companies meeting interest payments even with yields on the Bank of America Merrill Lynch U.S. Corporate & High Yield index having risen to 4.23%, 0.64 percentage point more than at the end of 2012.
Gross domestic product is expected to grow by 2.65% next year from 1.6% this year and after contracting 2.8% in 2009, according to 81 economists surveyed by Bloomberg. The unemployment rate was 7.3% in August.
The Fed’s QE “was the right thing at the right time,” Kroger’s Schlotman said. “You can’t keep rates here forever. At some point, market forces have to drive your ability to succeed in the marketplace.”