Moody’s Investors Service today warned that speculative-grade companies face significant refunding risk.

In a new report the rating agency says that the relatively benign maturity schedule of these firms belies the increasing risk of default they face amid the fallout from the subprime crisis.

“The overall refunding risk is high for speculative-grade bonds and bank credit facilities as volatile capital market conditions outweigh slight improvements in ratings over the last year,” says Moody’s vice president/senior credit officer Kevin Cassidy. “The ongoing market and financial pressure — including the heightened potential for covenant violations—trumps the apparent ebb in speculative-grade companies’ refinancing needs.”

Spec-grade companies face high refinancing risk in light of the continued uncertainty in the credit markets, including financial challenges at large banks and bond insurers, a continued housing market slump and tighter bank lending requirements, Moody’s notes.

An examination of 300 Moody’s speculative-grade corporate issuers shows that US$86 billion in credit facilities and corporate bonds are scheduled to mature between 2008 and 2010. The maturity schedule is as follows: US$13 billion in 2008, US$28 billion in 2009, and US$45 billion in 2010.

For the three-year period from 2008-2010, Moody’s study also shows that refunding needs have shifted toward bank credit facilities from bonds, reflecting the recent low interest rate period during which the leveraged loan market grew rapidly.

Moody’s projects the default rate for the universe of U.S. speculative-grade issuers to increase sharply to 5.3% by the end of 2008 from 0.9% in 2007 — the lowest it had been since 1981 when the default rate stood at 0.7%.