S&P Global Ratings expects funding costs to remain elevated for U.S. and Canadian nonbank financial institutions (NBFIs) through 2026 as high interest rates persist and as investors seek premium in spreads amid economic uncertainty.  Financial services issuers in both countries saw benign financing conditions in 2024, supported by investors' increased risk appetite, tighter credit spreads, and lower base rates. And with considerable funding available, both investment-grade and speculative-grade issuers have made strides in addressing near-term debt maturities and chipping away at those further out. But macroeconomic and market uncertainty has begun to pressure issuance volumes and widen credit spreads, which could pose challenges to funding--especially for speculative-grade issuers.

Much of the debt that's expected to mature this year was issued during the era of low interest rates that ended in 2022. While credit spreads have tightened since the second half of 2023, we expect interest rates to remain relatively high in 2025. As a result, companies that have benefited from lower funding costs will be forced to refinance the maturing debt at higher rates.

Right now, our economists expect one 25-basis-point cut for the federal funds rate in 2025, with it ending the year at 4.00%-4.25%. They also see real GDP growth cooling to 1.9% in 2025 and 2026 (down from 2.8% in 2024), with average annual growth of roughly 2.0% thereafter.

But S&P Global Ratings believes there is a high degree of unpredictability around policy implementation by the U.S. administration and possible responses--specifically with regard to tariffs--and the potential effect on economies, supply chains, and credit conditions around the world. As a result, our baseline forecasts carry a significant amount of uncertainty. As situations evolve, we will gauge the macro and credit materiality of potential and actual policy shifts and reassess our guidance accordingly (see our research here: spglobal.com/ratings). A lot will depend on how trade policies affect inflation, growth, consumer spending, and the labor market.

Our expectation is that most rated companies--typically those rated 'BB-' or higher--will cover higher interest expenses with operating cash flow, without relying on incremental borrowings.  While funding costs will increase for companies that refinance debt that was raised before rates shot up in 2022, we also expect that these maturities will be mostly manageable. We believe NBFIs that use unsecured debt to diversify their funding are generally better positioned because they typically have more financial flexibility in the form of unencumbered assets.

At the same time, elevated interest rates, coupled with the macroeconomic impact of tariffs, could further weaken the profitability and liquidity position of lower-rated companies, pushing some into distress.  Distressed debt exchanges may increase among NBFIs as lower-rated companies with unsustainable capital structures look to refinance their debt. We will continue to monitor these transactions as refinancing risk starts to rise in 2026.

NBFI Debt Maturities Peak In 2028

The 131 U.S. and Canadian NBFIs that issue debt and are publicly rated by S&P Global Ratings have about $440 billion in debt outstanding, and about 25% of that amount (approximately $108 billion) was raised in 2024.

About $264 billion in nonrevolving, nonsecuritized debt is set to mature over the next five years, with 2028 ($70 billion) being the peak year. And about 33% of the total outstanding debt for these NBFIs is speculative grade--that is, rated 'BB+' or lower (see the Appendix for the debt maturity profiles of individual NBFIs).

Consistent with trends in NBFI issuance, U.S. speculative-grade financial services issuance was strong in the second half of 2024, supported by policy rate cuts, tighter credit spreads, and declining inflation; the full-year figure was up 25% from 2023. But its pace so far this year--$6.6 billion through February--is lagging behind what we saw both at this point in 2024 and at this point in 2023 (see chart 1).

Chart 1

Chart 2

U.S. investment-grade (rated 'BBB-' or higher) financial services issuance had a brisk start to 2025 after a very strong 2024 (see chart 3). The January and February 2025 combined issuance figure (almost $150 billion) was close to the record for the first two months of the year, set last year (over $160 billion).

The credit spread for U.S. investment-grade financial services bonds has also generally narrowed, tightening by over 20 basis points (bps) since August 2024 to 98 bps as of Feb. 28, 2025--almost the tightest this spread has been since late 2021 (see chart 4). However, credit spreads could widen materially this year on the back of uncertainty around tariffs.

Chart 3

Chart 4

NBFI Issuance Volume Was Strong In 2024 Across The Rating Spectrum

Overall North American NBFI issuance grew significantly in 2024 owing to highly supportive financing conditions. NBFIs across the rating spectrum accessed the funding market amid those favorable conditions to take advantage of declining benchmark rates and tight spreads.

Investment-grade NBFI issuance, which saw steady growth, accounted for about 55% of total NBFI issuance in 2024. Among investment-grade companies, business development companies (BDCs) and commercial lenders, transportation equipment lessors, and alternative asset managers represented about 84% of total issuance volume. Nearly half of the investment-grade issuance was rated 'BBB-', primarily debt issued by BDCs and aircraft lessors (see chart 5).

After a rebound in 2023, speculative-grade NBFI issuance continued its strong momentum in 2024. Of the $48 billion issued by NBFI speculative-grade issuers, about 60% was raised by traditional asset managers, transportation equipment lessors, and residential mortgage companies.

Chart 5

BDCs and commercial lenders, transportation equipment lessors, and asset managers accounted for about 76% of the debt raised by NBFIs overall in 2024. The remaining 24% was split among commercial real estate companies, consumer finance, residential mortgage companies, money/payment services, and other subsectors.

Chart 6

NBFI Debt Maturities Are Expected To Remain Manageable, Despite An Increase In Coming Years

In our view, the amount of North American NBFI debt maturing in 2025 is manageable--roughly $20 billion (or 7.4% of the total amount maturing over the next five years) among 26 companies. The amount climbs to about $56 billion in 2026 before it peaks at about $70 billion in 2028.

However, of the roughly $264 billion of NBFI debt that is set to mature over the next five years, about 67% is investment grade. We expect that investment-grade companies will maintain easier access to capital, enabling them to prudently address debt maturities. About $63 billion of the investment-grade NBFI debt that's maturing over the next five years is specifically rated 'BBB-', primarily debt from BDCs and aircraft lessors.

As to the speculative-grade NBFI debt that's maturing over the next five years, $51 billion of that debt is rated in the 'BB' category, $31 billion is rated in the 'B' category, and about $6 billion is rated in the 'CCC' and below category (see chart 7).

Amid higher-for-longer base rates, NBFIs with weak operating performance will experience wider spreads, amplifying the pressure on their debt service coverage ratios and the credit ratings. That said, lower-rated companies will likely preserve excess cash flow amid the current macroeconomic uncertainty, in our view, by scaling back on shareholder-friendly behavior (such as buybacks and special dividends) to either reduce leverage or fund portfolio growth.

Chart 7

NBFIs represent a small share of total outstanding debt in the U.S. and Canada. We estimate that nearly $6.2 trillion in debt from U.S. and Canadian financial and nonfinancial issuers (including bonds and loans but excluding revolving credit facilities) is scheduled to mature in 2025-2029, with about 29% of this amount coming from financial services issuers.

Financial services maturities in coming years will peak at roughly $440 billion in 2026--considerably lower than recent years' bond issuance volumes, which have stayed above $550 billion in each of the past four years (see chart 8).

By comparison, maturities for nonfinancial corporate issuers are set to rise rapidly--almost doubling between 2025 and a 2028 peak of $1.1 trillion. This might add to financing pressure for these issuers in coming years, especially if funding conditions become less favorable.

Chart 8

Debt Maturities Will Also Be Manageable Across NBFI Sectors

The amount of NBFI debt maturing through 2029 represents a narrow slice of the North American financial services debt maturing over the same period. But in our view, many NBFIs play important roles in providing funding and liquidity to leveraged borrowers, while others play critical roles in providing various financial services to consumers. As a result, we believe challenging financial conditions for NBFIs could spill into the broader credit markets.

We generally expect debt maturities in most NBFI sectors to be manageable over the next five years. Of the roughly $264 billion of debt maturing between now and 2029:

• $124 billion is from transportation equipment lessors;
• $46 billion is from BDCs and commercial lenders;
• $17 billion is from traditional asset managers;
• $14 billion is from consumer finance;
• $14 billion is from the residential mortgage sector;
• $13 billion is from money/payment companies;
• $13 billion is from commercial real estate; and
• $13 billion is from alternative asset managers.

Chart 9

Sector-specific considerations

Asset managers.  We have a stable view of all asset management subsectors--traditional, alternative, and wealth--for later this year.

• Traditional managers are the most exposed to market volatility, and some could face pressure from net outflows.
• While wealth managers are similarly vulnerable to market movements, their asset bases are stickier, resulting in more stable earnings. However, higher-for-longer interest rates could affect wealth managers because of their high leverage and proclivity for debt-funded inorganic growth.
• Alternative asset managers are the best positioned, considering the locked-up nature of their assets under management, their solid fundraising records, their diversified platforms, and the capital available for deployment during market dislocations. That said, prolonged weak investment performance and lower realizations could affect performance-related income.

We expect higher-for-longer interest rates to weigh on interest coverage metrics, particularly for issuers with significant variable-rate debt exposure or issuers that need to refinance over the near term. Most issuers' liquidity remains well positioned, with few near-term debt maturities; many issuers refinanced over the past few years while capital costs were low.

BDCs and commercial lenders.  We think competition in upper middle market lending will remain fierce, as the broadly syndicated loan (BSL) market continues to regain lost ground and as asset managers either launch their own BDCs or acquire established lenders.

The increased competition has resulted in spread compression in the BSL markets and the private credit market, to a low of about SOFR plus between 450 and 500 basis points for upper middle market direct lenders. We don't expect credit spreads to widen significantly given rising competition. Positively, BDCs and other middle market lenders have had ready access to the unsecured debt markets, allowing them to prefund debt maturities.

We expect the economic landscape to influence middle market lending materially. An anticipated economic slowdown, persistent inflationary pressures, and the potential impact of tariffs may hinder borrowers' ability to pass increased costs to consumers. This could lead to stress among highly leveraged middle market companies in certain sectors.

As portfolio companies struggle to meet their obligations, we could see some strains in asset quality through a rise in nonaccruals, realized and unrealized losses, and amended payment-in-kind income.

Commercial real estate lenders.  We don't think the systemic pressure on commercial real estate (CRE) portfolios will be as severe in 2025 as we've seen over the last few years. But high interest rates continue to strain asset valuations by keeping cap rates elevated. The extent of the impact will depend on the location, property type, and underwriting quality of the properties securing the loans.

The impact of high interest rates has been realized in CRE lenders' portfolios, in our view, and we think older vintage loans (originated before 2023) will cause further asset quality deterioration. Signs of asset quality deterioration would include increases in specific loan loss reserves, nonaccrual loans, foreclosed real estate, and loans rated '4' or '5' on the companies' internal rating scales.

Multifamily loans have also shown signs of credit quality deterioration. A rise in troubled multifamily loans could exacerbate asset quality issues, especially since CRE lenders have meaningfully increased their exposures to multifamily since 2020.

In our view, transaction volume will likely accelerate this year, which would allow borrowers to exit certain investments. We expect CRE lenders to remain selective with new originations, and we think they'll continue to preserve liquidity as they look to resolve troubled loans and expend capital on foreclosed properties.

Commercial real estate services.  We believe the CRE services sector has passed the market bottom in this cycle. While seasonal factors will continue to affect leverage quarter by quarter, a recovery of transactional revenue will likely contribute to lower leverage and increased rating headroom.

Our expectation is that CRE services companies will achieve steady growth in their property and facility management businesses, supported by new client wins and mandate expansion from cross-selling opportunities. While these lines of business have lower margins than the transactional businesses, they generate recurring revenue streams and provide higher earnings visibility because of longer contract terms.

CRE services companies will likely prioritize organic growth and remain opportunistic when it comes to shareholder-friendly initiatives such as share buybacks. Companies with excess capital could make further talent investments in their transactional revenue businesses or look to M&A activity to broaden their service offerings in sectors with high growth, such as data center.

Transportation equipment lessors.  Revenue visibility and access to capital will help transportation equipment lessors maintain their healthy financial performance in 2025, in our view, while access to liquidity and the ability to efficiently manage cost of capital will continue to be important.

We believe aircraft lessors will continue to benefit from a supply-and-demand imbalance that could last through at least the next few years. And healthy financial performance--despite weaker operating conditions--supports our ratings on freight-focused lessors, particularly the larger ones.

The overall financing environment and cost of capital are important for transportation equipment lessors given the capital-intensive nature of the business and the spread-focused business model. While the decline in interest rates has been slower than expected, credit spreads for most lessors tightened noticeably through 2024, leading to an uptick in unsecured debt issuance from the previous year.

Many lessors, particularly investment-grade ones, have also successfully accessed other forms of financing, including via secured debt, preferred stock, and sukuk financing. Speculative-grade lessors, including car rental companies, were also able to raise new corporate and asset-backed debt to improve their liquidity cushions, meet their capital spending needs, or refinance maturing debt.

Nevertheless, interest costs are now notably higher than they were in previous years, especially for lessors who have had sizable capital spending outflows in recent years.

Transportation equipment lessors remain exposed to macroeconomic risks. Unexpected macroeconomic weakness this year and uncertainty around tariffs could strain demand, asset utilization, pricing, and cash flow.

While most issuers can respond to this scenario, there would also be less capacity to mitigate the impact on earnings and liquidity if there's weaker-than-expected demand.

Additionally, we believe some lessors--such as the car rental companies--will be more exposed to capital markets volatility stemming from evolving expectations around air travel demand and consumer spending.

Residential mortgage.  Our expectation is that elevated mortgage rates, buoyant home prices, lower inventory levels, and reduced purchasing power will compound the difficulties for residential mortgage companies in 2025. We believe originations will remain sensitive to market competition and the mortgage product mix, resulting in potential further volatility.

While purchase volume may improve later this year, we don't expect meaningful growth in refinancing volume because many existing borrowers have already taken advantage of lower rates. We think mortgage companies will continue to focus on expense management this year, though some companies will also pursue growth opportunistically as the industry consolidates.

We expect continued growth of mortgage servicing right (MSR) portfolios at companies with strong servicing platforms, primarily through bulk purchases and correspondent originations. As interest rates remain elevated, we expect mortgage servicing assets to hold their value because of low prepayment speeds and refinancing activity. We believe servicers that have deployed tighter MSR hedging programs have protected themselves from the potential decline in MSR valuations.

Consumer finance.  We think consumer asset quality could weaken this year, owing to slower economic growth, an expected rise in unemployment, higher-for-longer rates, and the likelihood of persistent inflation from the new U.S. administration's policies on tariffs (which could burden consumers' ability to repay their loans). As a result, we expect that consumer loan charge-offs and delinquencies will stay somewhat elevated this year but remain manageable.

That said, many consumer lenders have shifted their portfolio mixes by tightening their underwriting standards and by focusing on originating loans to either less risky customers or more secured lending. Demand for consumer finance will likely remain strong, and lenders will remain selective in originations.

Profitability and delinquencies should improve as the tail risk from the weaker 2022 vintages declines, but macroeconomic headwinds could strain performance for newer vintages. While consumer finance companies underwrite with adequate cushion in their receivables, in our view, the elevated charge-offs remain a potential risk, and we will continue to monitor these companies for earnings erosion from credit deterioration.

Auto finance.  Auto loan delinquency rates have started to rise as borrowers have continued to grapple with higher interest rates, inflation, and high monthly payments for auto loans and leases. Lenders' 2022 loans--the most pressured vintage--continue to roll off their portfolios, but macroeconomic headwinds could test newer vintages.

Used car prices have fallen nearly 20% from their peak in 2022, and the supply of two- to four-year-old vehicles remains tight following three years of lower OEM production caused by the pandemic. We think auto lenders with large lease books will likely report declines in gains tied to lease residuals, squeezing their profitability this year.

While subprime lenders have no operating lease exposure, they aren't immune to the expected decline in used car prices since they're dependent on recoveries through auction sales on repossessed vehicles.

Money transfer and payment processing.  We see macroeconomic headwinds weighing on growth over the next 12 months at the money transfer and payment processor sector's incumbents, as declines in retail fuel prices, volatile foreign exchange rates, stubborn inflation, and slower economic growth all drag on revenue.

Still, the sector's revenue sources are very diverse. They include global money remittances, commercial fleet fuel cards, corporate accounts payable services, online travel agency payment processing, health care benefits administration, toll fee processing, and ATM operation.

Capital allocation strategies will likely diverge among the companies we rate. We've already seen Wex Inc. raise additional capital to fund share repurchases this year. Others will likely look to acquire complementary businesses or invest in product innovation to accelerate growth and maintain their market positions. All of these factors could weigh on net debt and other credit metrics this year.

Appendix

Related Research

• Economic Research: Economic Outlook U.S. Q2 2025: Losing Steam Amid Shifting Policies, March 25, 2025
• U.S. Finance Companies Are Poised To Weather An Uncertain Economy And Interest Rate Environment In 2025, Jan. 22, 2025
• Asset Management Sector View 2025: Assets Under Management Are Growing--And So Is Complexity, Jan. 21, 2025