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.