Europe firms should race to lock in bond funding

By Natalie Harrison

LONDON (Reuters) - European companies with debt maturing soon should refinance now despite punitive rates because there is worse on the way.

Competition from hundreds of millions of dollars worth of government-backed bonds and from $1 trillion (673 billion pounds) a year of loans looking to be refinanced partly in the bond market could squeeze out some corporate issuers in the years ahead, raising the spectre of default for otherwise sound businesses.

Issuance has already soared in the last few weeks ahead of an expected crunch next year, when some $801 billion debt matures. This is split between $576.8 billion by financial companies and $172.6 by non-financial ones, according to credit rating agency Standard & Poor's.

Some 23 billion euros was raised in the euro-denominated corporate bond market in November, making it the best month for supply on record since June 2003, according to data from Societe Generale credit strategists.

Almost half of that -- 9.6 billion euros -- came in the last week alone, setting a fresh weekly record for this year, the bank added.

"Issue or be damned. Looks like no-one wants to be damned," SocGen's Suki Mann said, commenting on the 25 or so companies that have seized a rare chance to grab cash.

The backlog of debt refinancing has dramatically expanded after the bankruptcy of Lehman Brothers (LEHMQ.PK) slowed issuance. S&P forecasts some $2.1 trillion of European company and bank debt maturing in the next three years.

The squeeze could crank up the pressure on otherwise solid companies, not because their business has deteriorated, or because they have too much debt, but simply because of the maturity structure of their funding.