In the first of a series of reports on corporate credit markets, S&P highlights a truly unsettling downside scenario that could derail the “fragile equilibrium” in credit markets.

The title of the report: The Credit Overhang: Is A $46 Trillion Perfect Storm Brewing?

S&P estimates up to $46 trillion in refinancing and new financing needs by companies over the next four years. The worry is whether or not the credit markets will be able to handle it.

From the report:

The global “wall” of nonfinancial corporate debt maturities coming due from 2012 to 2016 is not new to market observers. Less discussed is the incremental financing that corporate debt issuers will need over this period to fund capital expenditure and working capital growth. Standard & Poor’s Ratings Services estimates the total amount of refinancing and new money requirements over the next five years at between $43 trillion and $46 trillion. This demand for funds will potentially compound the credit rationing that may occur as banks seek to restructure their balance sheets, and bond and equity investors reassess their risk-return thresholds. These factors, amid the current eurozone crisis, a soft U.S. economic recovery following the Great Recession, and the prospect of slowing Chinese growth, raise the downside risk of a perfect storm for credit markets, in our view.

It’s important to note that this is a downside scenario. S&P’s baseline scenario is that the credit markets will indeed be able to handle the new financing needs. But after the fiscal and monetary efforts of the last several years, governments have little left in the tank to combat a new crisis.

An S&P chart on the size of credit needs in relation to GDP:

Standard and Poors Ratings Services

 

Visit Standard and Poors for the full report.