The first step has been to collect liquidity; the second will be to release it. Investment banks anticipate a wave of issues to refinance credit lines.
Inditex, El Corte Inglés, Iberdrola, ACS, Mercadona, Repsol, Naturgy or Ferrovial are on the list. All of them have knocked on the banks’ doors to request lines of credit with which to strengthen their liquidity in the face of the impact of the coronavirus crisis. Together they have amassed 30,000 million euros, but that is only the first step, the retaining wall. From there the time will come to manage these multi-million dollar resources.
Unlike what has happened in other countries, Spanish companies have first appealed to banks. The bond market has lagged far behind. The cost of financing in this way has skyrocketed and financial institutions have been cheaper and more agile. But this situation can change if the crisis continues. Experts warn that a long storm will cause those lines of credit to be used to finance suppliers or to face defaults and will then cease to be liquidity and become debt.
“Liquidity lines are the first lifesaver and companies have them there just in case,” says Jesús Garrido, director of Debt Markets at ING. “They are perfect to weather the storm, but if that short-term debt becomes structural, it becomes necessary to refinance it in the long term to release it once it is ready,” he adds.
This is where the bond market comes into play, especially for companies with ratings and for those more used to dealing with investors. So far, only Iberdrola, Repsol, Naturgy and Red Eléctrica have appealed to listed debt during the crisis and have done so in not very high amounts, but investment banking is expecting a change.
Especially since, as much as the crisis may threaten the survival of companies, the first thing it puts in check is the rating and the risk rating agencies take into account unused liquidity buffers held by companies. . The norm is to require a minimum of available resources to face two years of debt maturities without having to go to the markets or banks, and, if the crisis reduces that cushion, companies will have to redo it if they do not want to lose the ranking. , they warn from an investment bank.
“In the second half of the year we could see many issues to refinance credit lines. Everything will depend on the duration of the crisis. If it is solved in two or three months, some companies will not have to make use of liquidity, but if the economic situation does not improve, there will have to be emissions to refinance, “says the director of ING.
Others believe that the movements may come earlier, even in the coming days. The increase in the cost of financing via bonds that has caused the crisis has functioned as a temporary deterrent and now it is expected that the risk premiums that are asked of companies will begin to decrease and that time is helping issuers to prepare from the front legal.
“Companies go to banks first because financing is cheaper and faster, but when some companies finish preparing the documentation and the spreads narrow, there will be issues,” they explain from a foreign investment bank with a presence in Spain. .
Financial orthodoxy has a lot to do with it. “At the moment, the spreads have widened for some companies and sectors, but it is prudent that the credit lines are refinanced as the market improves,” they add.
Everything will depend on the sector in which these companies are, the impact of the crisis and the need to protect the ranking of each one of them. “Telecommunications companies or energy companies have seen their risk premiums decrease and they will have no problem entering the market,” says another source from the investment bank.
Other industries such as the hotel and tourism industries are in the eye of the hurricane and their costs of financing with bonds continue to be under great pressure. And the same thing happens to banks. In the latter case, however, the need for liquidity is less. Financial institutions have the shield of the European Central Bank and can remain on the margins of the market swings to a greater extent than other sectors to avoid having to pay the extra premium that is required at the moment.