Capital Markets

Waiting to Exhale

CFOs' need for capital remains high — as does their anxiety regarding their bankers.
Vincent RyanMarch 1, 2009

Any notion that two conspicuous symptoms of the recession — reduced head count and mothballed projects — will curtail companies’ need for capital may be premature. A new CFO survey of finance executives at 268 U.S. companies finds that three-quarters 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 — 42 percent are somewhat confident that lenders and markets will meet all of their company’s funding needs, and 24 percent are very confident.

That attitude wouldn’t be so unusual if it didn’t fly in the face of prevailing conditions. A full 77 percent of finance executives see no evidence that the federal government’s bailout measures are easing the credit picture for corporations, for one. And 43 percent say banks have enforced preexisting debt covenants and other terms more strictly in the past six months (up from 33 percent last November).

Finance executives may say they’re confident, but their actions say otherwise. Companies have drawn down a greater percentage of their lines of credit since October: 35 percent have tapped more than half, compared with 25 percent last fall. Only 30 percent of respondents say they have 100 percent of their revolver available, down from 43 percent. Ongoing doubts about the stability of financial institutions also have 46 percent of companies consolidating cash accounts with a smaller number of banks or placing 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 cracks in financial-services firms’ safety and soundness.

Indeed, a promise of financial stability is the second most important attribute that CFOs want from their banking partners during this crisis. The first? Access to reasonably priced credit, of course. Unfortunately, those are two things banks are having a very hard time delivering right now.

Evidence the government's bailout measures are easing credit for corporations?
How satisfied are you with your primary bank?
How confident are you that lenders and financial markets can meet your funding needs in 2009?
What do you want from your banking partner in this economic environment?
Is your company planning to refinance any debt in the next 12 months?
What data are you using as an early-warning system of deterioration of your bank's health?
What percentage of your company's revolving line of credit is currently drawn down?
Are concerns about banks' financial stability making you reconsider where to keep company cash?
Have lenders recently enforced preexisting debt covenants more strictly?
What financing actions do you plan to take in 2009?

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