Capital Markets

On Tenterhooks

CFOs' need for capital remains great — as does their anxiety regarding their bankers.
Vincent RyanMarch 2, 2009

Any notion that two conspicuous symptoms of the recession, reduced staff numbers and mothballed projects, will curtail companies’ hunger for capital may be premature. A new global survey of more than 550 finance executives by CFO Europe and its sister magazines in the US and Asia finds that companies’ need for capital remains great-as does the anxiety regarding their bankers.

In all three regions, the majority of respondents say they will seek some form of financing this year, and nearly half hope to refinance the debt they already have. Surprisingly, the respond­ents are optimistic about completing those deals-more than half are either somewhat or very confident that lenders and markets will meet all of their company’s funding requirements.

This is surprising, as the attitude flies in the face of prevailing conditions. Among the 152 European respondents, for example, more than 70% see no evidence that various government bailout measures are easing the credit climate for companies. And nearly one-third say banks are enforcing pre-existing debt covenants and other terms more strictly than before.

Finance executives may claim they’re confident, but their actions suggest otherwise. European companies have drawn down nearly a quarter of their lines of credit, while only 31% of respondents said they have 100% of their revolver available. Doubts about the stability of financial institutions have also caused more than 60% of European firms to consolidate cash accounts with fewer banks or place cash with more banks to diversify risk. And almost all respondents are scouring bank financial statements, credit ratings, credit default swaps and third-party reports for signs of weakness.

Indeed, financial stability is the most important attribute CFOs want to be assured of by their banking partners during the crisis. A close runner up, however, is access to reasonably priced credit. Unfortunately, those are two things banks are having a very hard time delivering right now.

Vincent Ryan is a senior editor at CFO.