New research from Moody’s Investors Service sees elevated refunding risk for the US$300 billion of investment-grade non-financial corporate bonds that will mature during the next three years.

The study of 330 investment-grade non-financial corporate issuers in the U.S. with debt maturing between 2009 and 2011 indicates that credit ratings have migrated downward during the last year. About US$100 billion of the US$300 billion of maturing debt carries the lowest investment-grade ratings.

“Investment-grade companies have comparatively strong credit profiles, with more than half of the bonds maturing over the next three years rated single-A or higher,” said Kevin Cassidy, VP-senior credit officer at Moody’s. “Still, the overall deterioration of ratings over the last year increases the refinancing risk.”

The broad financial crisis is elevating refunding risk for most companies, Moody’s notes. However, it also observes that many investment-grade issuers are benefiting from investors’ relative confidence in companies with higher credit quality, reduced appetite for other forms of investment and need to continue deploying capital. This is reflected in a more than 150% increase in investment-grade non-financial corporate bond issuance during the first two months of 2009 versus the same period in 2008, it says.

“Investment-grade issuers have an advantage in these tight credit markets. But considering current conditions, we still consider refunding risk as relatively high for the US$99 billion of maturities in 2009,” Cassidy said.

The global recession is also taking a toll on many investment-grade companies, causing profitability and operating cash flow to deteriorate. This may result in an increase in covenant violations, Cassidy added.

“In contrast with the trend for many speculative-grade issuers, we believe that most investment-grade companies should be able to amend their credit facilities, although the cost may be substantial,” he noted.