Capital Markets

Bonds vs. Bombshells

Nothing frightens a CFO more than a lack of access to capital markets.
Marie LeoneNovember 1, 2001

Corporate debt is starting to resemble a financial bomb shelter. But instead of stockpiling waxed beans, investment-grade companies are amassing cash from bond offerings to make balance sheets recession-proof.

Prompted by a weak equity market and lower interest rates, corporate issuers beat last year’s record $353.2 billion total in just seven months, reports Thomson Financial. Much of the freshly raised capital is either being hoarded or used to pay down bank debt, says Jack Kallis, a senior vice president at State Street Research & Management, in Boston. “Nothing frightens a CFO more than lack of access to the capital markets,” quips Kallis, noting that finance chiefs are stockpiling cash based on flashbacks of Q3 1998, when access to the capital markets was cut off.

The flip side: The downturn has made bondholders more active. Those of Covad Communications Group are collecting $283 million in cash through a prenegotiated Chapter 11 filing. Such hefty cash payouts are rare before a company defaults. Of course, investment-grade firms have a lot more leeway than Covad did, at least for the time being.

Marie Leone ([email protected]) is the news editor of CFO.