Governments and central banks have launched multimillion-dollar programs to help companies during the coronavirus recession, but many of them are turning to another lifeline first to stay afloat: their short-term lines of credit with private financial institutions. .
Since last month, companies from all types of sectors have been calling their banks to withdraw the liquidity available on those loans, known in English parlance as credit revolving facilities.
According to Bank of America estimates, the entities of the euro zone have almost two trillion euros committed in this type of instrument, which are highly flexible loans. They allow companies to request their principal amount or to return it, in whole or in part, as appropriate, depending on their cash needs, and upon maturity they are usually extendable.
Given the severity of the crisis and the lack of operating income, many companies are claiming the pending money to use on these lines. Brewery Anheuser Busch InBev, airline easyJet and engine maker Rolls-Royce have already done so. In the United States, groups such as Delta Airlines and Ford have also used this type of credit to maintain their treasury.
According to a study of 2,600 liquidity lines to companies around the world, carried out by Berenberg Bank, in December 2019 only 8% of the available credit had been claimed. In March 2020, that percentage had jumped to 47%, and to 78% in the case of the neediest companies. In the first days of April, multiple signature announcements continued to activate this liquidity. “With the global economy undergoing an unprecedented distortion from the Covid-19 crisis, corporations are fighting for their survival. In need of cash, they are reclaiming their lines of credit at a rate even higher than the 2008 financial crisis,” points out Andrew Lowe, an analyst at Berenberg.
By sector, consumer product manufacturing companies (such as Kraft Heinz or Altria), distribution chains (such as H&M and Primark) and technology companies (Applied Material, Micron and NCR) appear to be the ones that are most squeezing their lines of liquidity.
Among those that least include the electricity companies and telecommunications operators, whose income is less affected by the economic slowdown. The oil companies, despite the collapse in demand and the price of crude oil, are barely requiring this type of credit, as they currently have other means of financing such as bond issues.
Many firms are combining these short loans with central bank financing (the Bank of England has created its own line of liquidity for companies) and with other more long-term structures, such as bonds or capital increases.
For banks, the flood of requests to activate these loans fattens their balance sheets with new risks. Berenberg estimates that the sector’s solvency ratio will worsen due to this impact, but in a moderate way.
Among Spanish entities, according to Bank of America, Santander had a total of 160,000 million euros in lines of credit open to companies at the end of 2018, ahead of BBVA (more than 100,000 million).
Entities continue to expand these lines, as supervisors have relaxed the capital and liquidity requirements that cover the danger of defaults. For example, Santander participates in a new line to the tobacco company Imperial Brands (owner of Altadis) and BBVA in that of Securitas.
- IAG. As of March 30, IAG had 2.1 billion euros in unused liquidity lines. Among them, the group of airlines has extended until June 2021, a credit of 1,380 million dollars for British Airways.
- AB InBev. Brewery AB InBev has asked its banks (including BNP, Deutsche Bank, Societe Generale and JPMorgan) for € 8.5 billion of its line of credit. Its objective is to have liquidity for more than one year.
- Imperial Brands. The tobacco company Imperial Brands, owner of Altadis, has signed a three-year line, extendable with 20 banks, coordinated by Santander, Natwest and Sumitomo Bank. The amount amounts to 3,500 million euros.
- Securitas. Swedish security group Securitas has replaced its open credit of 440 million with another of 847 million, five years. BBVA participates in the operation, along with Commerzbank, ING and Danske, among others.
- H&M. SEB, BNP Paribas, Danske Bank, Standard Chartered and Commerzbank have granted a new one-year loan of 980 million to the clothing store chain H&M. It is added to another 700 million line.
- easyJet. The easyJet airline has demanded from its banks the 500 million dollars (450 million euros) it had available, guaranteed with its planes. In addition, the group has asked for £ 600m (€ 684m) from the Bank of England.
- Rolls-Royce. Rolls-Royce, which supplies engines to the airline sector, used the £ 2.5bn (€ 2.85bn) of its short-term financing line in March. In addition, it has signed a new open loan of 1,700 million euros.
- Fiat chrysler. The automaker FCA has signed a loan of 3,500 million euros, for an initial period of one year, with two financial entities. It is added to other lines open for 7.7 billion that the Italian group has.