To ensure his company has liquidity for the uncertain months ahead, Mike Zechmeister, finance chief of freight broker C.H. Robinson Worldwide, is borrowing off his company’s $1 billion credit facility. He’s also examining accounts receivable and overdue payments to manage his company's liquidity position, which held $448 million in cash and cash equivalents at the end of December.
"As we look forward without knowing exactly where this is headed — the depth and the length of the strain on the economy — liquidity is the number one question that rises to the top of the list in terms of viability of a business," Zechmeister told The Wall Street Journal yesterday.
CFOs at other companies are going through similar exercises, trying to figure out which levers to pull, as they determine the best way to pay their bills without jeopardizing their ability to accelerate once the pandemic-related shutdowns are lifted.
Among the strategies they’re deploying: extending credit lines, bolstering emergency cash reserves and tapping bond markets.
"At any given time, we work to have enough cash on hand to meet our liquidity needs for more than one year, especially in times of increased volatility," Lauren Abbott of Anheuser-Busch told the Journal.
The Belgium-based company plans to amass a cash hoard of $6 billion by tapping the proceeds from a bond issuance of one of its subsidiaries. It will use the money to reduce debt as market conditions normalize.
Howard Hughes Corp., a Dallas-based real-estate developer, has raised $600 million through an equity issue and a parallel private placement, the Journal reported. Together, with its existing cash, the company has about $1 billion at its disposal. "This will help us survive this, independent of how deep or how long this pandemic will be," Chief Financial Officer David O’Reilly said.
A Gartner survey of 192 CFOs and finance executives released yesterday found a majority of CFOs plan to slow-pay vendors to preserve cash. Finance chiefs at smaller companies are also planning to seek adjustments to rent obligations.
"CFOs are taking a variety of proactive cash management measures in the wake of this economic turbulence, with more than a third of respondents indicating that customer receipt payments will be delayed or go unpaid," said Alexander Bant, practice vice president, research, for the Gartner Finance Practice.
Stimulus not enough
Finding the right strategy for amassing cash will be critical in the coming months because the assistance coming from the federal government, including loans from the $2 trillion stimulus package Congress passed two weeks ago, won't be enough.
An analysis by credit-rating firm Moody’s said many companies, particularly smaller ones, face a bleak future despite the federal help.
"These measures are unlikely to prevent irreversible credit deterioration and, in many cases, outright default for smaller, weaker companies," Moody’s says.
Companies with speculative-grade credit ratings are especially vulnerable, as borrowing what they need will be difficult at terms they can afford. "Many businesses will likely struggle," the analysis says.
To help it survive, Sonic Automotive, a Charlotte, North Carolina-based car-dealership chain, hopes to take advantage of the relative good health of banks by securing new credit lines while drawing down the lines it already has. "The banks are in very good shape," said Heath Byrd, the company's CFO.
Byrd credited the strict measures the federal government put in place after the 2008-09 financial crisis for forcing banks to maintain ample capital. "In hindsight," he said, it’s fortunate "that 2009 happened and created those liquidity ratios to be better for the banks."
Not all companies are benefiting from banks' relative good health.
Coal supplier Murray Energy Corp., which is under bankruptcy protection, faces the prospect of breaching covenants in its bankruptcy loan after its finances were hit hard by the pandemic and beleaguered coal markets, the Journal reported.
That’s the exact scenario the Moody’s analysts were concerned about: companies whose debt is barely investment grade will struggle to meet their debt obligations as their access to public debt markets and new bank loans closes off.
"We have already taken a number of negative rating actions," Moody’s said.
That puts the spotlight on CFOs and the bag of options they can reach into to get their companies through the downturn.