Corporate America is awash in junk debt, and the situation could deteriorate substantially in the next five years as a record amount of issuance comes due. Moody's Investors Service warned Thursday that default risk is on the rise for the nearly $1.2 trillion of speculative-grade loans, bonds and various related instruments maturing from 2020-24. That total is a record for maturities coming due over a five-year period, up 14% from 2019. While low interest rates have allowed spec-rated companies to continue to roll over all that paper, a slowdown in the economy or a reversal in Federal Reserve monetary policy could pose problems.

A bigger issue may be that so many companies are slowly sliding down the rating scale. Moody's notes that 36% of the total bank maturities in the speculative sphere are rated B3 or lower, up from 33% a year ago. That B3 rating is at the bottom of the "highly speculative" ladder and just above the level considered to carry substantial risk. In all, single B-rated loans now constitute more than half of the issues maturing in the next five years, also a record. "This greater percentage of lower-rated loans points to higher defaults in the next downturn," a team led by Moody's senior analyst Anastasija Johnson said in a report. Moody's also warned that a swath of investment-grade companies continue to pose risks of replicating Ford Motor's move in 2019 in falling to speculative-grade debt. Companies the ratings agency named included Newell Brands, Western Digital and Elanco Animal Health, all of which carry Baa3 negative ratings.