Fitch evaluates refinancing options for leveraged American companies.

Fitch Ratings just released a special report that examines the implications of the debt-fueled buy-out boom of several years ago.

According to Fitch, an unprecedented amount of leveraged loan and high yield bond debt will come due in the next five years.

Many, if not all, of the U.S. companies that issued such debt have seen deteriorating operations while the credit markets remain selective. Furthermore, maturity concentration ensures that many companies will be vying for lenders' dollars and attention over the next several years.

As described in the report 'Refinancing the Buy-Out Boom: Profiles of Select Leveraged Credits', several companies have already begun pursuing various alternatives to proactively manage the refinancing challenges they may face over the next several years. In conducting its analysis, Fitch made the following observations:

* Fitch acknowledges there are several early indicators of rising economic activity and that equity and debt prices have rebounded since March 2009. However, fundamental catalysts for a meaningful near-term improvement in overall credit quality remain scarce.

* While many of these highly leveraged companies have generated free cash flow through the downturn, these companies will remain dependant on external sources of capital, requiring refinancing/negotiating with lenders.

* Fitch does not expect the institutional loan market to be able to absorb all of the loan debt that comes due during the next five years. The high yield bond market will likely expand to absorb a portion, but its capacity could be stressed by the absolute volume of debt that will need to be refinanced in this period.

* Unless valuations meaningfully improve from recent levels, equity proceeds from IPOs are not likely to be a widespread source of debt repayment.

* Several companies have taken preemptive actions such as executing debt exchanges for bonds and amending and extending agreements with bank lenders to push out debt that matures in the crowded refinancing window.

* Access to capital has improved for some companies recently, but Fitch expects creditors to remain selective in the near and intermediate term.

In the report, Fitch provides an analysis of nine 'B' and 'CCC' category companies in Fitch's rated universe that represent over $100 billion in total debt across six sectors, and presents detailed assessments of their capital structures, financial covenant flexibility, and recovery prospects.

While vulnerability to economic weakness is inherent in 'B' and 'CCC' rated entities, certain of these companies could ride out the challenges they face in the economy and credit markets while others have relatively limited flexibility to endure further deterioration in the environment.